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NATIONAL 
CONFERENCE 


ON 


TAXATION 


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Nation^ttCivicItoeration 

Held  at 

HISTORICAL   SOCIETY  HALL 
BUFFALO,  N.  Y. 


Thursday  and  Friday,  May  2^^24 

igoi 


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NATIONAL  Conference 
ON  Taxation 


Under  the  Auspices  of  the 

NATIONAL    CIVIC    FEDERATION 


HELD  AT 

Historical  Society  Hall 

BUFFALO,  N.   Y. 


Thursday  and   Friday,  May  23    and   24,  1901 


CALL    FOR   CONFERENCE    ON   TAXATION  BY 
THE  NATIONAL  CIVIC  FEDERATION. 

For  some  years  the  dissatisfaction  with  our  methods  of  taxation,  both  State 
and  local,  has  been  growing  apace.  We  have  been  so  long  accustomed  to  a  system 
which  was  suited  to  the  early  conditions  of  our  American  life,  that  we  are  only 
slowly  awakening  to  its  shortcomings  in  the  light  of  modern  business  activity. 
Industry  has  overstepped  the  boundaries  of  any  one  State,  and  commercial 
interests  are  no  longer  confined  to  merely  local  lines.  Corporate  activity  has 
largely  changed  the  character  of  personal  property  and  individual  investments. 

The  problem  of  just  taxation  is  no  longer  a  local  problem.  It  cannot  be 
solved  without  considering  the  mutual  relations  of  contiguous  States  and  locali- 
ties. An  unequal  tax  on  the  farmer  in  one  State  may  make  it  difficult  for  him 
to  sell  his  products  in  the  world  markets.  An  unjust  tax  upon  the  manufacturer 
or  business  man  may  drive  him  out  of  the  business;  an  unfair  tax  on  the 
corporation  may  cause  it  to  move  to  another  State.  Action  by  any  one  common- 
wealth evidently  reacts  upon  its  neighbor. 

The  time  has  come  for  those  dissatisfied  with  the  spasmodic  and  make-shift 
efforts  at  reform  in  some  States  to  consider  the  problems  involved  from  the 
higher  standpoints  of  principle  and  of  mutual  co-operation.  We,  therefore,  join 
in  the  call  of  the  National  Civic  Federation  for  a  conference  at  Buffalo,  N.  Y., 
May  23d  and  24th,  of  the  friends  of  tax  reform  from  the  various  States  in  the 
hope  that  it  may  formulate  some  ideas  which  will  tend  toward  more  uniformity 
and  interstate  comity. 

Among  the  questions  pressing  for  solution  and  which  will  be  considered  at 
this  Conference  are  the  following: 

First      — The  interstate  taxation  of  quasi-public  corporations. 

Second  — The  taxation  of  personal  property. 

Third    — The  taxation  of  mortgages. 

Fourth  — The  separation  of  State  and  local  revenues. 

Fifth     — The  taxation  of  the  farmer. 

Sixth     — The  equitable  assessment  of  real  property. 

Seventh — The  inheritance  tax. 

Eighth  — Taxation  of  corporations. 

Ninth    — The  franchise  tax. 

Tenth    — The  income  tax. 

All  of  these  subjects  must  be  considered  not  in  and  of  themselves,  but  also 
in  relation  to  the  complications  of  interstate  taxation. 

T.  Jefferson'  Coolidge,  late  member  Massachusetts  Commission  on  Taxation. 

Charles  S.  Hamlin,  President  Anti-double  Taxation  League  of  Massa- 
chusetts. 

William  H.  Lincoln,  President  Boston  Chamber  of  Commerce. 

George  G.  Crocker,  President  Boston  Transit  Commission. 

F.  W.  Taussig,  late  member  Massachusetts  Commission  on  Taxation. 

114324 


George  E.  McNeil,  late  labor  representative  Massachusetts  Tax  Commis- 
sion. 

Richard  H.  Dana,  ex-President  Taxation  League,  Boston. 

George  F.  Seward,  Chairman  Committee  on  Taxation,  Chamber  of  Com- 
merce. 

Oscar  S.  Straus,  President  New  York  Board  of  Trade  and  Transportation. 

William  F.  King,  President  Merchants'  Association. 

Julian  T.  Davies,  President  New  York  Tax  Reform  Association. 

Charles  S.  Fairchild,  President  New  York  Security  and  Trust  Company. 

Edwin  R.  A.  Seligman,  head  of  Department  Political  Economy,  University 
of  Columbia. 

J.  Harsen  Rhodes,  late  President  New  York  Savings  Banks  Association. 

John  F.  Doyle,  President  New  York  Real  Estate  Board  of  Brokers. 

Lawson  Purdy,  Secretary  New  York  Tax  League,  New  York. 

Martin  Murphy,  President  of  Workingmens'  Federation  of  the  State  of 
New  York. 

Elijah  Kennedy,  fire  insurance.  New  York. 

Foster  M.  Voorhees,  Governor  of  New  Jersey. 

Mahlon  Pitney,  President  State  Senate,  New  Jersey.  » 

W.  R.  Tucker,  Secretary  and  Treasurer  National  Board  of  Trade,  Phila- 
delphia. 

William  E.  English,  President  Commercial  Club,  Indianapolis. 

Samuel  Mather,  manufacturer,  Cleveland,  Ohio. 

Richard  T.  Ely,  head  of  Department  Political  Economy,  University  of 
Wisconsin. 

J.  Sloat  Fassett  (late  State  Senator,  New  York). 

Thos.  G.  Hayes,  Mayor  of  Baltimore. 

Henry  C.  Adams,  head  of  Department  Political  Economy,  University  of 
Michigan. 

C.  C.  Plehn,  head  of  Department  Political  Economy,  University  of  Cali- 
fornia. 

Aaron  Jones,  Grand  Master  National  Grange,  Indiana. 

James  R.  Garfield,  Chairman  Ohio  Senate  Committee  on  Taxation. 

Frederick  N.  Judson,  Attorney,  St.  Louis,  Mo. 

John  M.  Stahl,  Secretary  Farmers'  National  Congress. 

Lawrence  Y.  Sherman,  Speaker  Illinois  House  of  Representatives. 

Fred.  W.  Upham,  President  Chicago  Taxing  Board  of  Reviews. 

Henry  K.  Boyer,  Superintendent  United  States  Mint,  Philadelphia. 

D.  A.  Hayes,  Vice-President  American  Federation  of  Labor,  Philadelphia. 
William  Wirt  Howe,  ex-President  National  Bar  Association,  New  Orleans. 
George  R.  Peck,  General  Counsel  Milwaukee  and  St,  Paul  Railroad,  Chicago. 
F.  P.  Crandon,  Tax  Commissioner,  Chicago  Northwestern  R.  R.,  Chicago. 
Theodore  Marburg,  Vice-President  American  Economic  Association,  Bah 

timore. 

T.  B.  Ne.\l,  President  Chamber  of  Commerce,  Atlanta,  Ga. 

P.  I.  BoNEBRAKE,  President  Central  National  Bank,  Topeka,  Kan. 

Dudley  Wooten,  late  Chairman  Committee  on  Taxation,  Texas  Legislature. 

Max  Adler,  President  Chamber  of  Commerce,  New  Haven,  Conn. 

S.  A.  Harris,  President  National  Bank  of  Commerce,  Minneapolis. 

George  Gaither,  Jr.,  late  Attorney-General,  Maryland. 


PROCEEDINGS 


OF   THE 

NATIONAL  CONFERENCE  ON 
TAXATION 

UNDER   THE    AUSPICES    OF   THE 

NATIONAL  CIVIC   FEDERATION 

HISTORICAL  SOCIETY  HALL,  BUFFALO,  N.  Y. 

May   2.3,    1901. 

Mr.  Edwin  R.  A.  Seligman:  Gentlemen  of  the  Conference,  as  Chairman 
of  the  Committee  on  Program  I  have  the  honor  of  calling  the  Conference 
to  order,  and  of  suggesting  that  the  Chairman  of  this  session  should  be  Hon. 
Frederick  N.  Judson,  of  St.  Louis,  Mo.  All  those  in  favor  of  having  Mr.* 
Judson  act  as  Chairman  of  this  session  to-day  will  signify  it  by  the  usual  sign. 

Mr.  Judson  was  unanimously  chosen  as  Chairman,  and  responded  as 
follows : 

I  feel  highly  honored  in  being  requested  to  preside  over  such  a  representa- 
tive gathering  of  American  citizens,  called  to  consider  what  to  my  mind  is  the 
gravest  problem  free  people  can  be  called  upon  to  solve.  We  are  honored  by 
the  presence  of  the  Mayor  of  Buffalo,  Mayor  Diehl,  who  will  give  you  an 
address  of  welcome. 

Mayor  Diehl  :  Mr.  President  and  Gentlemen,  I  extend  to  you  the  City 
of  Buffalo's  most  hearty  welcome.  The  City  of  Buffalo  feels  highly  honored 
in  having  this  Convention  held  here  at  this  time  to  consider  these  important 
subjects.  I  believe  if  this  Convention  succeeds  in  its  aim,  if  its  objects  are 
carried  out,  equalization  of  taxation  and  other  kindred  subjects  connected 
therewith,  it  will  do  more  to  make  the  United  States  great  than  any  other 
factor.  Of  this  you  gentlemen  must  be  as  well  aware  as  I  am.  Every  paper 
in  every  State  has  daily  some  article  in  regard  to  taxation  in  its  different 
aspects.  Now,  we  look  to  you  to  suggest  some  method  for  the  equalization 
of  taxation ;  and  I  am  sure  you  gentlemen  will  succeed.  I  can  see  by  your 
faces  that  you  mean  business,  and  you  are  going  to  suggest  something  to  the 
country  at  large  that  they  will  appreciate  and  attempt  to  carry  out.  Now, 
gentlemen,  you  have  important  business  and  you  are  going  to  work  hard,  but 
I  believe  all  work  and  no  play  will  fit  as  well  with  business  men  as  with 
boys ;  therefore  I  suggest  to  you  after  you  have  worked  hard  to  take  in  part 
of  our  city.  I  will  not  refer  to  the  Pan-American.  You  all  know  about  that, 
yourselves,  but  we  can  show  you  a  city  here  second  to  none,  with  our  two 
hundred  and  fifty  miles  of  asphalt,  with  our  great  river  front,  with  our  lake 
front  and  our  harbor.  You  can  see  at  our  harbor  a  breakwater  that  very  few 
people  have  ever  seen — the  largest  breakwater  in  the  world.     The  good  Gov- 


6  THE   NATIONAL   CIVIC   FEDERATION. 

crnmcnt  has  been  kind  enough  to  put  a  breakwater  there  about  four  miles  long, 
giving  us  a  harbor  and  facilities  that  are  interesting  aside  from  the  business 
capacities,  which  are  the  main  thing. 

Gentlemen,  my  best  wishes,  in  tendering  you  the  freedom  of  the  city, 
which  I  trust  you  may  all  enjoy  to  the  fullest  capacity  consistent  with  your 
work. 

The  Chairman  :  Gentlemen,  I  am  requested  by  the  Committee  to  announce 
for  the  general  information  of  the  Conference  that  the  program  contem- 
plates, so  far  as  they  have  been  able  to  arrange  it  at  this  hour,  meetings  during 
the  coming  three  days  and  two  sessions  daily.  It  is  proposed,  if  that  meets 
the  wishes  of  the  Conference,  that  the  sessions  be  held  during  the  day,  so  that 
members  can  have  the  evenings  for  taking  in  attractions  which  Buffalo  has  to 
offer  us.  The  papers  will,  when  read,  be  open  for  discussion.  It  has  been 
suggested  by  the  Committee  that  in  order  to  facilitate  the  time  of  the  Conven- 
tion or  Conference,  the  subject  of  taxation  being  so  far-reaching  and  involving 
so  many  questions,  that  the  discussion  be  limited  to  the  different  topics  pre- 
sented in  the  different  papers.  It  is  also  suggested,  with  a  view  of  giving  an 
opportunity  of  having  as  many  as  possible  participate  in  the  discussion,  that 
speeches  be  limited  to  five  minutes.  It  is  hoped  that  these  suggestions  will 
meet  the  approval  of  the  members. 

For  this  morning  I  will  state  that  we  will  have  an  introductory  address 
by  Professor  Seligman,  and  a  paper  by  the  Hon.  J.  R.  Garfield,  of  Ohio,  and 
one  by  Dr.  West,  of  Washington.  This  afternoon,  so  far  as  the  program 
is  outlined,  we  will  take  up  the  different  subjects  connected  with  the  taxation 
of  corporations  and  of  public  franchises.  To-morrow  morning  the  subject 
especially  assigned  will  be  tlie  taxation  of  mortgages,  and  with  that  we  will 
take  up  other  topics  as  they  will  naturally  occur  to  you. 

Gentlemen,  I  have  now  the  honor  to  introduce  to  you  a  gentleman  whose 
name  is  known  all  over  the  country  and  all  over  the  world  in  the  cause  of 
economic  science,  Professor  Seligman,  of  Columbia  University,  New  York: 

INTRODUCTORY    ADDRESS. 


BY  EDWIN  R.  A.   SELIGMAN, 

Professor  of  Political  Economy  and  Finance,   Columbia  University. 

The  calling  of  this — the  First  National  Conference  on  Taxation— is  a  matter 
of  the  highest  significance.  It  shows  that  the  national  conscience  has  been 
awakened  and  that  the  whole  country  is  now  permeated  by  the  conviction  that 
we  are  confronted  by  a  grave  problem.  Why  should  this  be  so?  What  are 
the  causes  of  the  existence  of  this  problem? 
]  The  causes  may,  I  think,  be  summed  up  under  three  heads:    Increase  of 

1  burden,  economic  changes  and  inequality  of  pressure.  In  the  first  place,  the 
^  burdens  of  taxation  are  now  being  felt.  The  growth  of  democracy  has  brought 
with  it  new  conceptions  as  to  the  duty  and  function  of  government.  Expendi- 
tures which  would  have  appalled  our  fathers  seem  to  us  reasonable  and  necessary. 
To  hope  to  remove  the  problem  of  taxation  by  cutting  down  expenditures  is 
vain.  Economy  we  must,  indeed,  have,  but  not  parsimony.  The  ideal  of  expen- 
diture is  not  to  spend  little,  but  to  spend  well.  Savages  spend  little  or  nothing, 
but  are  none  the  less  savages.  Democracy  must  spend  much — will  spend  ever 
more — but    it    should    spend    intelligently.      With    the    growth    of    civilization, 


NATIONAL   CONFERENCE   ON   TAXATION.  7 

expenditures    must    increase.      The    burden    of    taxation    necessarily    becomes 
heavier.     The  population  of  New  York  City  to-day  is  about  the  same  as  that 
of  the  entire  country  at  the  beginning  of  the  present  government.    Yet  whereas 
New  York  spends  about  one  hundred  millions  a  year,  the  expenditures  of  the 
United  States  began  at  four  millions,  and  even  during  the  first  decade  of  its 
existence  under  the  present  Constitution  averaged  only  about  eight  millions  a 
year.      In    the    Federal    Government    whereas    since    1790    the    population    has 
increased  twenty-fold— from  four  millions  to  eighty  millions— the  expenditure  ( 
has    increased    one    hundred    and    fifty-fold,    from    four   millions   to    six    hun-  t 
dred  millions.     In  state  and  local  finance  the  figures  are   still  more   striking.  \ 
New  York  State  spent  in  1796  less  than  $150,000;   it  spent  in  1900  about  twenty- 
five  millions,  or  one  hundred  and  sixty-six  times  as  much.     New  York  City 
spent  in  1800,  with  a  population  of  60,000  souls,  a  little  over  $100,000.    By  1900 
its  population  had  increased  sixty  times,  but  its  expenditures  had  increased  one 
thousand  times.    The  burdens  are  beginning  to  be  felt. 

The  second  cause  is  the  economic  transition  to  be  referred  to  in  a  moment, 
and  which  has  brought  about  a  growing  differentiation  of  classes;  and  the 
third  reason  is  inequality  of  pressure,  which  because  of  this  increase  of  burden 
and  this  differentiation  of  classes,  has  been  accentuated  Many  a  man  may  be 
willing  to  pay  his  own  taxes ;  but  none  is  willing  to  pay  another  man's  taxes. 
The  practical  inequality  of  taxation,  more  than  anything  else,  is  responsible 
for  the  feeling  which  has  led  to  this  Conference. 

Let  us  see,  then,  in  what  the  problem  consists.  It  must  be  understood  at  the 
outset  that  we  are  not  assembled  to  deal,  except  in  passing,  with  national  taxa- 
tion. The  Federal  fiscal  system  is  relatively  simple  and  its  principles  are  fairly 
well  understood.  We  may  agree  or  disagree  on  the  policy  of  the  customs 
duties — but  the  question  of  a  protective  versus  a  revenue  tarifif  involves  a  wider 
economic  and  political  controversy  which  cannot  be  settled  simply  from  the 
point  of  view  cf  finance  and  taxation.  We  may  like  or  dislike  the  precise 
character  of  our  indirect  internal  revenue  taxation.  But  the  system  as  it  has 
been  elaborated  has  caused  no  widespread  discontent,  and  seems  to  respond  fairly 
well  to  the  sentiment  of  the  community.  The  only  point  that  might  be  urged  is 
that  of  the  income  tax.  Under  the  existing  conditions  of  our  Supreme  Court, 
however,  the  income  tax  is  not  a  practical  question;  nor  could  it  become  so, 
under  any  possible  constitutional  changes,  without  being  in  the  closest  relation 
with  the  whole  system  of  State  and  local  finance. 

The  real  problems,  thus,  with  which  we  are  called  upon  to  deal  are  those 
of  State  and  local  taxation.  They  are  the  important  problems  for  three  reasons : 
First,  because  the  local  burdens  greatly  transcend  in  importance  those  of  the 
nation ;  secondly,  because  our  local  taxes  are  primarily  direct  taxes  and  are  thus 
consciously  felt  by  the  citizens;  thirdly,  because  the  questions  of  principle  are 
far  more  delicate  and  complicated. 

In  attacking  these  problems,  the  chief  consideration  is  the  close  connection 
between  economics  and  finance,  between  industrial  conditions  and  fiscal  institu 
tions.     To  those  who  have  not  given  a  careful  study  to  the  question,  it  may 
come   as   a   surprise   to  be   told   of  the   inevitable   dependence   of  methods 
taxation  upon  general  economic  conditions.    Yet  it  is  a  well-established  scienti 
generalization  that  every  change  in  the  economic  structure  of  society  brings 
with  it  an  alteration  in  the  methods  of  taxation.    A  history  of  taxation  through- 
out the  world  is  really  a  history  of  economic  transitions.     At  these  times  of 
transition,  however,  the  fiscal  methods  always  lag  behind  the  economic  facts.    If 


\ 


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8  THE   NATIONAL   CIVIC    FEDERATION. 

we  wait  long  enough,  the  fiscal  methods  will  finally  adjust  themselves  to  the 
new  facts;  but  in  the  meantime  there  is  a  misfit,  with  all  its  attendant  discom- 
forts. The#function  of  the  statesman  is  to  accelerate  this  process;  is  to  change 
the  old  methods  as  wisely  but  as  speedily  as  possible  so  as  to  adjust  them  to 
the  new  conditions  and  thus  to  prevent  the  misfit  from  growing  intolerable.  We 
are  here  to  deliberate  whether  we  cannot  educate  the  public  mind  to  a  realization 
of  the  misfit. 

It  will  be  asked,  however,  what  are  these  economic  changes  which  call 
for  an  alteration  of  fiscal  methods?  The  changes  which  have  taken  place  during 
the  past  few  decades  are  three  in  number— first  the  transition  from  the  agricul- 
tural to  the  industrial  stage,  second  the  growth  of  corporate  enterprise,  third 
the  broadening  of  the  market  and  the  disappearance  of  State  lines  in  business 
activity. 

First,  the  transition  to  the  industrial  stage.  For  many  decades  our  country 
was  an  agricultural  community.  Differences  of  wealth  were  slight,  and  what 
capital  existed  was  invested  either  in  land  or  in  the  commercial  enterprises  con- 
nected with  the  marketing  of  the  raw  produce.  Manufacturing  industry  was 
confined  to  relatively  unimportant  articles,  and  played  an  insignificant  role  in 
the  national  economy.  To-day  all  that  is  being  changed  and  the  United  States 
is  fast  becoming  an  industrial  nation  on  a  huge  scale.  Fiscal  methods  instituted 
for  a  simple  and  primitive  farming  community  are  manifestly  unfit  for  the 
complex  conditions  of  a   modern  and   highly   differentiated  industrial   society. 

Secondly,  the  growth  of  corporate  enterprise.  Business  corporations  are  a 
modern  institution.  In  former  times  associations,  whether  of  a  corporate  or  of 
a  joint  stock  character,  were  found  only  in  exceptional  cases,  like  the  East  India 
Company  or  the  Bank  of  England.  With  us  it  was  not  until  about  1850  that 
corporate  activity  assumed  any  importance  at  all.  Just  as  individuals  were  then 
replaced  by  unions  of  individuals,  so  now,  whether  we  like  it  or  not,  small 
corporations  are  being  replaced  by  unions  of  corporations  into  huge  enterprises 
that  are  popularly  called  trusts.  Property  to-day  is  coming  to  an  ever-increasing 
degree  to  take  the  shape  of  corporate  securities  and  trust  certificates.  The 
simpler  methods  of  older  days  no  longer  suffice. 

Thirdly,  and  above  all,  industry  is  no  longer  confined  to  merely  local  limits. 
Commercial  interests  have  overstepped  the  boundaries  of  any  one  commonwealth. 
An  unequal  tax  on  the  farmer  in  one  State  may  make  it  difficult  for  him  to  sell 
his  product  in  the  world  market.  An  unjust  tax  upon  the  manufacturer  or 
business  man  may  drive  him  out  of  the  business  in  that  State;  an  unfair  tax 
on  the  corporation  may  cause  it  to  move  to  another  State.  Action  by  any  one 
commonwealth  inevitably  reacts  upon  its  neighbor.  Business  has  become 
national;  and  even  international;  fiscal  methods  framed  on  the  old  assumption 
that  business  is  local  are  bound  to  create  injustice  and  disatisfaction. 

One  note  of  warning,  however,  must  be  sounded.  When  we  speak  of 
economic  transitions,  we  must  remember  that  our  country  constitutes  a  huge 
empire  whose  sections  are  still  in  varying  stages  of  economic  progress.  Missis- 
sippi is  vastly  different  from  Massachusetts ;  South  Dakota  is  not  the  same  as 
/Pennsylvania.  A  system  of  taxation  may  still  work  fairly  well  for  an  agricul- 
,'  tural  community  and  may  be  entirely  unsuited  for  its  mdustrial  neighbor.  Yet 
even  here  it  must  be  remembered  that  in  Mississippi  and  South  Dakota,  as  well 
as  in  Massachusetts  and  Pennsylvania,  we  find  the  railroad,  the  telegraph,  the 
electric  Ijght,  and  the  bank — i.e.,  some  of  the  agencies  of  a  complex  modern 
society  in  the  midst  of  a  new  and  pioneer,  or  still  primitive,  economic  community. 


NATIONAL   CONFERENCE   ON   TAXATION.  9 

Thus,  in  so  far  as  certain,  economic  institutions  are  common  to  the  whole 
country,  the  problem  is  everywhere  the  same ;  in  so  far  as  other  economic  condi- 
tions are  fundamentally  dissimilar,  the  problem  itself  is  different. 

Let  us  now  apply  these  considerations  to  the  practical  questions.  Every-  / 
where  in  this  country  the  chief  reliance  for  revenue  is  the  general  property  tax.  I 
There  is  no  doubt  that  in  most  respects  this  responds  in  theory  to  the  ideal  of 
the  community.  That  a  man  should  pay  according  to  his  ability,  and  that  his 
ability  may  justly  be  measured  by  his  property,  seems  to  most  people  fair  and 
equitable.  The  difficulty  arises  when  we  attempt  to  realize  this  ideal  amid  the 
complications  of  modern  society.  So  far  as  property  consists  in  real  estate,^ 
indeed,  no  one  raises  any  fundamental  objection.  Yet  even  here  there  are 
minor  difficulties,  which  often  become  of  considerable  practical  importance. 
The  unequal  assessment  of  real  estate  which  sometimes  assumes  the  proportions 
of  a  scandal,  is  above  all  due  to  the  mad  race  of  the  local  assessors  to  diminish 
the  obligation  of  the  country  to  the  State  by  keeping  down  the  nominal  valuation. 
The  separation  of  State  from  local  revenues,  the  selection  of  different  sources  of 
income  for  each,  of  which  I  trust  you  will  hear  nluch  more,  is  the  one  avenue 
of  escape,  which  is  even  now  being  sought  for  by  our  most  progressive  common- 
wealths. 

It  is  about  personal  property,  however,  that  the  chief  controversy  rages.fv 
The  change  from  the  tangible  personalty  of  an  earlier  stage  to  the  intangible  - 
personalty  of  modern  society  has  resulted  in  the  gradual  disappearance  of  per- 
sonal property  from  the  tax  lists.  Who  can  help  sympathizing  with  the  farmers?. 
Their  personalty  is  tangible,  and  they  thus  pay  not  only  their  own  share  but  that 
of  the  others  as  well.  But  although  we  sympathize  with  their  complaints,  can  we 
approve  of  their  remedy?  The  attempt  to  enforce  the  taxation  of  intangible 
personalty  has  been  tried  again  and  again.  Its  only  result  has  been  to  produce 
not  revenue,  but  dishonesty.  The  enforcement  of  the  personal  property  tax  is 
converting  us  more  and  more  into  a  nation  of  perjurers. 

Moreover,  the  idea  that  it  is  necessary  to  tax  all  kinds  of  property  to 
reach  the  property  o\yner  rests  on  the  widespread  delusion  that  to  pay  a  tax 
is  to  bear  its  burden.  What  is  needed  is  a  study  of  the  incidence  of  taxation. 
We  tax  cigars,  and  we  know,  indeed,  that  the  tax  is  shifted  to  the  smoker. 
We  tax  mortgages,  but  we  forget  that  the  tax  although  levied  on  the  mortgagee 
is  always  ultimately  borne  by  the  mortgagor.  What  is  true  of  mortgages  is 
true  of  many  other  kinds  of  personal  property.  If  there  is  any  science  of  taxa- 
tion, it  rests  upon  the  study  of  the  real  effects.  Nowhere  is  it  truer  than  in  the 
domain  of  taxation  that  there  is  a  great  difference  between  "what  is  seen  and 
what  is  unseen." 

But  if  the  personal  property  tax  is  unworkable  and  practically  inequitable, 
is  there  not  a  method  of  reaching  the  owner  of  personalty  in  an  indirect  manner? 
Here  again  our  foremost  commonwealths  are  pointing  out  the  way.  If  you 
cannot  reach  the  personalty  of  a  living  man,  you  can  reach  that  of  a  dead  man. 
If  you  cannot  reach  the  intangible  property  of  the  security  holder  you  can  reach 
the  corporation  which  issues  the  security.  We  shall,  I  trust,  hear  much  of  the 
inheritance  tax.  I  pass  it  by  with  a  simple  mention  that  here  also  are  important 
questions  to  be  solved:  Shall  the  inheritance  tax  apply  to  realty  as  well  as  to 
personalty?  Shall  it  apply  to  direct  relatives,  as  well  as  to  collaterals?  Shall 
the  rate  be  proportional  or  progressive?  and,  finally,  shall  the  Federal  Govern- 
ment continue,  as  it  now  does,  to  interfere  with  one  of  the  growing  resources  of 
the  commonv/ealths? 


/> 


lo  THE   NATIONAL   CIVIC   FEDERATION. 

With  the  corporation  tax  we  come  to  the  knottiest  part  of  the  subject.  How 
to  make  the  corporation  pay  its  share  of  the  taxes,  and  yet  not  to  burden  it 
unduly,  is  the  question  of  questions.  Here  the  difficulties  seem  to  be  multiplied. 
^To  mention  only  a  few  of  the  points:  What  is  the  franchise  of  a  corporation, 
and  how  shall  it  be  estimated?  Shall  earning  capacity  or  other  criteria  form  the 
test  of  taxable  ability?  Shall  we  seek  a  method  of  assessment  which  even 
though  only  roughly  approximate,  is  certain,  or  a  method  which  while  more 
subtle  and  delicate,  involves  arbitrariness?  Shall  all  corporations  be  treated 
alike,  or  shall  different  classes  be  taxed  at  different  rates?  Shall  pure  business 
corporations  be  exempted  or  favored?  Shall  foreign  and  domestic  corporations 
be  assessed  in  the  same  way?  Shall  interstate  corporations  be  treated  according 
to  a  uniform  rule?  These  are  only  a  few  of  the  points  on  which  light  must  be 
thrown  before  we  can  even  approach  a  satisfactory  solution  of  the  problem. 

And,  finally,  even  though  we  may  come  to  some  understanding  as  to  the 
principles  and  practice  of  the  inheritance  tax  and  the  corporation  tax,  we  are 
still  confronted  by  the  question  whether  some  additional  substitutes  for  the 
decaying  personal  property  tax  must  not  be  provided.  We  must  study  the 
question  of  business  taxation  in  general,  and  conclude  how  far  a  tax  on  the 
business  man  is  really  a  tax  on  the  purchaser;  and  how  far  the  license  system 
of  the  Southern  States  is  to  be  regarded  as  a  model  or  a  warning.  We  must 
investigate  the  problem  of  the  occupation  tax,  and  decide  as  to  how  far  a  tax 
on  the  residence  occupied  by  the  city  man  may  be  considered  a  fair  evidence 
of  his  ability  to  contribute  to  the  local  burdens. 

Let  us  approach  the  problem  in  a  spirit  not  of  fanaticism,  but  of  fairness. 
Let  us  be  prepared  to  look  not  only  on  the  surface,  but  on  the  hidden  currents 
and  the  deeper  forces.  Let  us  recognize  the  fact  that  taxation  is  both  a  scien- 
tific and  a  very  practical  problem,  and  that  any  system  which  is  to  give  enduring 
satisfaction  must  be  at  once  in  harmony  with  the  principles  of  economic  science 
and  in  accord  with  the  feelings  of  justice  in  the  average  man.  In  a  democracy 
like  ours  no  reform  can  be  a  lasting  one  unless  it  responds  to  the  sense  of 
equity  in  the  mass  of  the  voters. 

Hence  the  heavy  responsibility  upon  the  leaders  of  thought  and  of  action  in 
educating  the  public  in  so  abstruse  and  so  difficult  a  field  as  that  of  taxation. 
May  this  interchange  of  opinions  conduce  to  the  clearing  up  of  ideas.  May 
this  meeting  of  the  North  and  the  South,  of  the  East  and  the  West  bring  about 
a  dissemination  of  knowledge  and  a  better  understanding.  May  the  labors  of 
this  Conference  be  crowned  with  success  and  lead  to  a  permanent  organization 
which  will  keep  before  each  one  of  our  States  the  larger  aspects  of  the  problem- 
and  thus  hasten  the  time  when  interstate  comity  and  agreement  will  take  the 
place  of  the  present  distrust  and  suspicion,  when  the  actual  spasmodic  and  make- 
shift efforts  at  reform  will  give  way  to  a  movement  based  on  the  higher  stand- 
points of  sound  principle  and  mutual  co-operation. 

The  Chairman  :  Gentlemen,  I  think  you  will  agree  with  me  that  the 
very  comprehensive  character  of  the  interesting  and  exhaustive  paper  to  which 
we  have  just  listened,  suggests  that  discussion  would  perhaps  better  be  deferred 
until  the  specific  subjects  which  have  been  thus  treated  have  been  presented. 
If  this  meets  with  the  approval  of  the  meeting  I  will  proceed  with  the 
program, 

Mr.  Purdy:  I  beg  to  call  your  attention  to  the  fact  that  we  are  at  present 
without  a  Secretary.  I  move  that  Mr.  Ralph  M.  Easley  be  elected  as  the 
Secretary  of  this  Conference. 


NATIONAL   CONFERENCE   ON   TAXATION,  i, 

The  motion  was  duly  seconded. 

The  Chairman  put  the  question  on  the  motion  and  the  same  was  unani- 
mously carried. 

The  Chairman:  It  is  one  of  the  most  interesting  phases  of  the  taxation 
question  that  it  interests  men  of  radically  different  pursuits  in  life.  It  interests 
the  economists,  of  whom  you  have  just  heard  a  distinguished  representative, 
who  are  especially  qualified  to  present  to  us  the  economic  justice  and  the 
scientific  problem  involved.  But  questions  of  taxation  equally  interest  the 
profession  to  which  I  belong— the  lawyers,  for  it  is  our  business  to  aid  in 
enforcing  the  law  and  in  protecting  our  clients  against  unjust  applications  of 
the  law. 

I  have  the  honor  to  introduce  to  you  a  representative  of  the  lawyers  who 
takes  an  interest  in  the  subject  of  taxation,  a  gentleman  who  bears  an  hon- 
ored American  name  at  the  bar  of  Ohio,  and  who  has  represented  that  State 
in  the  Legislature.  I  take  pleasure  in  introducing  to  you  Hon.  James  R.  Gar- 
field, of  Cleveland,  Ohio. 

LISTING   AND   VALUATION. 


BY   JAMES   RUDOLPH   GARFIELD. 

Mr.  Garfield:  Mr.  Chairman  and  Gentlemen,  whatever  may  be  the  system 
of  taxation  adopted,  and  upon  whatever  theory  that  system  may  be  based,  the 
fundamental,  practical  part  of  that  system,  and  upon  which  must  depend  its 
success  or  failure  is  the  listing  of  the  property  and  its  valuation— that  is,  the 
placing  of  the  property  upon  the  bill-book  in  order  that  it  may  bear  its  share 
of  the  taxes  levied.  The  existing  methods  of  listing  and  taxation  are  divided 
into  two  general  heads — that  is,  one  where  the  listing  is  done  and  the  valuation 
placed  by  an  Assessor  or  Board,  and  the  other  where  the  listing  is  done  and 
the  valuation  placed  by  the  taxpayer  himself.  We  may  now  consider  these  two 
systems : 

Whatever  may  be  the  system  of  taxation  or  whatsoever  kind  of  property 
may  be  made  the  subject  of  taxation,  the  fundamental  practical  question  is:  How 
shall  the  system  be  carried  into  effect  and  the  property  placed  upon  the  duplicate 
at  its  proper  valuation. 

The  existing  methods  of  listing  and  valuation  are  divided  into  two  general 
classes:  First,  the  personal  return  of  amount  and  value  by  the  taxpayer; 
second,  the  assessment  of  value  by  a  public  officer  or  board.  Originally,  these 
different  methods  were  applied  to  two  different  kinds  of  property;  the  first 
applicable  to  personal  property;  the  second  to  real  estate.  In  a  community 
where  life  was  simple  and  homogeneous,  the  results  could  be  and  were  a  fairly 
uniform  valuation;  but  as  the  industrial  condition  became  more  complex  the 
character  of  personal  property  became  differentiated  and  hence  its  proper 
valuation  more  difficult. 

As  to  real  estate,  it  is  universally  conceded  that  the  proper  method  for  its 
listing  and  valuation  is  by  the  local  assessor  of  the  tax  district,  he  fixing  the 
value  of  real  estate  and  improvements  and  placing  such  value  upon  the  duplicate 
in  the  name  of  the  owner  of  record. 

Various  methods  for  the  listing  and  valuation  of  personal  property  have 
been  tried,  and  experience  shows  that  the  method  of  listing  by  the  taxpayer,  t 
whether  under  oath  or  not,  is  not  satisfactory.    The  general  tendency  is  to  omit  [ 


12  THE   NATIONAL   CIVIC   FEDERATION. 

intangible  personal  property  altogether,  and  to  place  an  absurdly  low  valuation 
upon  such  personal  property  as  cannot  readily  be  secreted.  How  far-reaching 
is  the  result  of  such  returns  is  strikingly  shown  by  comparing  the  returns  of 
personal  property  during  a  series  of  years. 

I  take  Ohio  as  an  example.  There,  the  law  provides  for  a  general  property 
tax  and  a  personal  return  is  required  of  the  taxpayer  covering  the  most  minute 
and  detailed  schedule  of  all  personal  property,  both  tangible  and  intangible.  The 
return  is  supposed  to  be  under  oath. 

The  following  table  shows  the  changes  in  the  grand  duplicate  of  personal  and 
real  property  since  the  adoption  of  the  present  constitution  and  covering  a  period 
of  thirty  years : 

Date.  Real.  Personal. 

1870 $   807,846,636  $459,684,861 

1875 1,062,915,044  535,660,818 

1880. ■ 1,102,049,931  456,166,134 

1885 ■. . . .  1,160,165,882  509,913,986 

1890 1,232,305,312  543-833,165 

1895 1,214,928,085  527,589,429 

1900 1,274,203,721  559,849,507 


<r 


The  highest  valuation  of  personal  property  appeared  in  1893,  being 
$568,567,255- 

It  will  thus  be  seen  that  during  the  last  twenty-five  years,  there  has  been 
practically  no  increase  in  the  valuation  of  personal  property,  while  the  State 
during  that  period  has  increased  enormously  both  in  wealth  and  population. 

The  listing  and  valuation  of  real  estate  is,  in  Ohio,  made  by  local  assessors 
every  ten  years,  with  the  result  that  there  has  been  a  gradual  increase  of  land 
valuation.  The  proper  increase  of  land  value  is,  however,  checked  by  the  failure 
to  obtain  personal  property  returns,  as  naturally  the  real  estate  owners  object 
to  an  increase  of  real  estate  valuation  not  in  proportion  to  an  increase  of 
personal  property. 

The  failure  of  the  personal  property  returns  is  still  more  marked  by  compar- 
ing the  valuation  of  personal  property  with  the  market  values  of  the  stock  and 
bonds  which  are  known  to  be  in  existence,  but  which  seldom,  if  ever,  appear 
on  the  duplicates.  The  marvelous  industrial  development  in  twenty-five  years 
is  in  evidence  everywhere  except  upon  the  tax  duplicate.  The  failure  of  this 
method  has  caused  the  adoption  of  various  remedial  schemes  which  have 
accentuated  its  inherent  weakness.  The  valuation  thus  fixed  becomes  the 
valuation  for  the  tax  districts,  State,  county,  township,  municipal,  school  and 
special.  It  early  developed  that  while  the  individual  might  be  willing  to  return 
a  fair  valuation  for  local  purposes,  he  objected  to  making  a  return  higher  than 
that  of  taxpayers  in  adjoining  townships  and  counties.  Hence,  the  tendency  was 
to  reduce  his  return.  The  remedy  for  this  fault  was  equalization  boards,  aiM 
the  remedy  has  grown  to  be  as  much  of  an  evil  and  proved  as  great  a  failure 
as  the  system  itself.  Political  jobbery  and  official  corruption  have  been  added  to 
personal  dishonesty. 

A  most  stringent  remedy  was  adopted  in  Ohio,  namely,  the  tax  inquisitor 
system.  This  was  first  instituted  in  1882,  the  owners  of  real  property  believing 
that  by  arbitrary  measures  personal  property  could  be  found. 

By  reference  to  the  above  table,  it  will  be  seen  that  the  personal  property 


NATIONAL   CONFERENCE   ON   TAXATION.  13 

return  in  Ohio  decreased  from  $535.66o,8i8  in  1875  to  $456,166,154  in  1880.  Soon 
thereafter  the  Inquisitor  Law  was  enacted  and  first  made  applicable  to  certain 
counties  onljs  but  afterwards  extended  to  the  whole  State.  Under  that  law, 
the  County  Commissioners  may  employ  individuals  to  search  for  personal  prop- 
erty, and  when  discovered,  place  the  same  on  the  duplicate,  inflicting  certain 
severe  penalties.  This  is  done  under  the  authority  of  the  Auditor,  and  the 
Inquisitor  is  paid  from  20  per  cent  to  25  per  cent  of  the  amount  collected.  The 
immediate  effect  of  this  law  seemed  beneficial,  and  the  total  return  of  personal 
property  increased  in  1882  to  $518,229,097,  and  reached  its  highest  point  in  1893, 
when  it  was  $568,567,255.  Since  that  date,  it  has  steadily  decreased  until  in 
1897  it  was  but  $511,096,768,  although  during  that  year  the  tax  inquisitors  were 
working  in  fifty-seven  of  the  eighty-eight  counties. 

Since  1897  there  has  been  an  increase  from  $511,906,768  to  $559,849,507. 

The  Inquisitor  Law  is  an  attempt  to  enforce  a  bad  system  by  the  infliction 
of  severe  penalties.  It  has  proved  not  only  useless  but  demoralizing.  Demoral- 
izing, because  it  has  produced  contempt  for  the  law  and  put  a  premium  upon 
dishonesty.  The  high  rates  of  taxation  in  most  localities  resulting  from  a  failure 
to  increase  the  valuation  have  made  an  honest  return  of  tangible  property 
practically  impossible.  For  instance,  if  the  tax  rate  be  3  per  cent,  as  it  is  in 
many  places,  the  return  of  money  or  intangible  property  at  its  market  value, 
at  the  present  time  when  the  average  interest  earnings  are  about  4  per  cent, 
would  mean  practical  confiscation  of  the  earning  power  of  that  property.  Hence, 
estates  which  are  in  the  hands  of  executors  and  guardians  and  the  few  individuals 
whose  consciences  compel  them  to  obey  the  law,  bear  excessively  unjust  propor- 
tions of  the  burdens  of  taxation.  The  average  man  declines  to  make  the  return, 
and  is  willing  to  take  the  chance  of  successfully  evading  the  Inquisitor  or 
settling  with  him  for  an  amount  much  less  than  the  tax  would  be,  or  he  leaves 
the  State  and  withdraws  all  his  personal  property  from  the  duplicate. 

Again,  the  amount  of  money  obtained  by  the  Inquisitor  is  out  of  all 
proportion  to  the  value  of  the  service  rendered.  Since  the  operation  of  the  law 
under  which  they  act,  the  Inquisitors  have  been  paid  over  $1,000,000,  making  this 
the  most  lucrative  official  business  in  the  State,  and  from  which  business  the  State 
has  suffered  rather  than  benefited.  The  practical  effect  of  the  law  has  been  to 
drive  away  millions  of  property  which  otherwise  would  have  been  returned  for 
at  least  a  partial  valuation.  The  Inquisitors  have  successfully  prevented  its 
repeal  by  deceiving  the  people  with  the  statements  that  they  are  bringing  the 
"tax  dodger"  to  justice.  While,  in  fact,  the  real  reason  for  the  Inquisitor's 
anxiety  to  prevent  a  repeal  is  that  he  is  obtaining  an  enormous  return  for 
little  work,  and  with  no  investment  of  capital.  The  system  is  bad ;  the  remedy 
has  proved  worse,  and  the  sooner  Ohio  abandons  the  effort  to  tax  by  the  present 
method  intangible  property  the  better  the  State  will  be  both  financially  and 
morally. 

We  should  have  no  sympathy  for  the  "tax  dodger,"  that  citizen  who  would 
make  his  neighbor  pay  for  the  protection  of  his  life  and  property.  But  let  ui 
bring  him  to  justice  by  sensible  methods,  not  by  a  method  which  enriches  the 
Inquisitor,  brings  discredit  to  the  law,  and  a  decreased  valuation  of  property. 

The  experience  of  Ohio  shows  the  utter  uselessness  of  attempting  to  reach 
personal  property  by  individual  return,  and  the  Inquisitor  Law  instead  of 
affording  a  remedy  has  driven  millions  of  capital  away  from  the  State  and  has 
brought  the  State  into  disrepute. 

The  growth  of  corporations  has  developed  special  methods  for  listing  and 


14  THE   NATIONAL   CIVIC   FEDERATION. 

valuation  of  corporate  property,  and  the  laws  enacted  for  this  purpose  have 
in  great  part  been  formed  along  logical  and  practical  lines.  The  corporation 
being  the  creature  of  the  Stale,  it  is  more  subject  to  governmental  inspection  and 
control  than  the  individual.  It  may  readily  be  required  and  compelled  to  make 
public  its  resources  and  business,  thus  affording  all  the  facts  necessary  for 
public  officers  who  may  properly  value  and  list  its  property. 

However,  many  States  still  permit  corporations,  through  their  managers,  to 
make  returns  as  individuals  and  in  such  instances,  the  same  unsatisfactory 
condition  obtains  as  with  individuals.  Both  these  systems  are  in  force  in  Ohio. 
Certain  quasi-public  corporations,  such  as  street  railroads,  steam  railroads, 
electric  light,  water  and  gas  companies,  are  taxed  for  State  purposes  upon  their 
gross  income,  the  corporation  being  required  to  return  a  full  statement  of  its 
earnings  to  State  officers.  Certain  other  corporations,  such  as  express,  telegraph 
and  telephone  companies,  make  a  return  to  State  officials  of  their  property  stating 
the  amount  of  their  capital  stock  and  bonds.  A  State  board  then  fixes  the 
valuation  of  the  property  of  that  corporation  upon  the  selling  value  of  its 
securities.  Banks  make  return  to  the  Auditors  of  the  various  counties,  stating 
their  resources,  liabilities,  capital  stock  and  stockholders.  The  Auditor  and 
thereafter  a  State  Board  fix  the  valuation  of  the  property  of  the  bank  from  these 
facts,  and  list  the  same  against  the  various  shareholders. 

Under  the  last  two  of  these  three  methods,  corporate  property  may  be,  and 
often  is,  completely  listed  and  fairly  valued.  The  first  or  excise  tax  upon  gross 
earnings  may  be  enlarged  and  developed  so  thaf  there  would  be  a  full  listing  of 
corporate  property,  and  the  obtaining  of  a  fair  valuation  upon  which  the  State 
taxes  could  be  easily  and  economically  raised. 

None  of  these  methods,  however,  apply  to  industrial  corporations.  Such 
corporations  make  returns  through  their  officers  as  individuals ;  and,  as  a  result, 
there  is  a  gross  evasion  of  the  law  and  the  most  inadequate  return  of  corporate 
property.  Much  of  the  street  railroad  property  of  Ohio,  although  paying  its  small 
gross  earnings  tax  to  the  State,  pays  local  taxes  upon  a  valuation  of  but  three  per 
*  cent  to  fifteen  per  cent  of  the  actual  earning  and  selling  value  of  its  property. 
Industrial  corporations  are  often  valued  at  but  from  ten  per  cent  to  twenty-five 
per  cent  of  their  true  value. 

Another  evil  which  has  developed  from  these  conditions  (the  various 
methods  being  in  force  in  the  same  taxing  district)  is  the  great  lack  of  uniformity 
in  valuation,  producing  constant  friction  between  the  owners  of  various  classes 
of  property  which  are  differently  listed  for  valuation.  Each  class  attempts  to 
force  down  the  valuation  of  its  special  property,  so  that  it  may  not  be  compelled 
to  bear  a  disproportionate  share  of  the  tax  imposed.  The  property  which 
suffers  most  under  these  conditions  is  real  estate  and  the  personal  property 
which  cannot  be  secreted.  This  condition  is  aggravated  by  reason  of  the  fact 
that  there  are  many  different  taxing  districts  whose  geographical  limits  are  not 
identical  with  the  assessment  district.  Hence,  as  has  been  before  suggested, 
various  boards  of  equalization  are  formed  for  the  purpose  of  equalizing  the 
inequalities  existing  between  the  valuations  in  the  various  taxing  districts. 

From    this    brief    outline    of   the    different    listing   and    valuation    systems 
existing  in  Ohio,  and  which  may  properly  be  considered  as  a  fair  example  of  the 
condition  obtaining  in  most  of  our  States,  the  following  general  conclusions  may 
be  deduced: 
I  First — The  method  of  listing  property  by  the  personal  return  of  the  tax- 

payer is  most  unsatisfactory  in  that  it   (a)   produces  gross  inequality  between 


NATIONAL   CONFERENCE   ON   TAXATION.  15 

personal  property  and  real  estate;  (b)  places  a  premium  upon  the  secreting 
of  property  and  the  evasion  of  returns;  (c)  utterly  demoralizes  the  public  sense 
of  honesty  in  matters  of  taxation. 

Second— The  listing  of  real  estate  by  local  assessors  is  a  just  and  practical 
method. 

Third— The  listing  and  valuation  of  corporate  property  by  official  boards 
which  have  the  power  to  compel  a  return  by  the  corporation  of  its  resources  and 
business,  have  proved  on  the  whole  satisfactory  and  practical. 

Fourth — The  attempt  to  combine  these  various  methods  is  not  satisfactory 
in  that  it  has  produced  the  grossest  inequality  and  lack  of  uniformity  in  the 
valuation  of  the  various  kinds  of  property  valued  under  these  various  systems. 

Fifth— The  general  result  of  lack  of  uniformity  is  that  real  estate  bears  an 
unfair  and  unjust  proportion  of  the  public  burden,  whereas  intangible  personal 
property  and  corporate  property  are  grossly  undervalued  and  in  many  instances  ' 
escape  taxation  altogether. 

The  general  propositions  which  I  beg  to  suggest  as  remedies  for  these 
conditions  are  as  follows : 

First — The  method  of  valuation  of  personal  property  should  approximate 
as  nearly  as  possible  the  method  for  the  valuation  of  real  estate. 

Second — The  efforts  to  compel  the  personal  return  by  the  individual  should 
be  abandoned.  The  listing  should  be  made  and  the  valuation  determined  by  a 
local  assessor  or  board  upon  such  information  as  the  individual  might  see  fit 
10  give ;  but  by  which  the  board  or  assessor  should  not  be  bound.  The  individual 
should  be  given  the  right  of  complaint  and  appeal  upon  the  valuation  fixed  by  the 
board,  and  such  valuation  could  be  reduced  upon  full  proof  by  the  individual 
that  the  valuation  was  excessive.  This  method  would  be  necessary  in  States 
where,  by  the  Constitution,  personal  property  must  be  subjected  to  the  general 
property  tax.  In  States  where  such  a  constitutional  provision  does  not  exist, 
there  should  be  no  attempt  to  tax  intangible  personal  property  in  the  hands  of  the 
individual  owner.  Such  property  consisting  of  stocks  and  bonds  of  corporations 
should  be  taxed  against  the  corporation  itself  as  it  can  there  be  easily  reached 
by  reason  of  the  government  right  of  inspection  and  control. 

Third — The  listing  and  assessment  district  should  be  as  nearly  as  possible 
identical  with  the  taxing  district,  thus  obviating  the  necessity  of  boards  of 
equalization,  whereby  great  practical  benefit  would  be  obtained.  The  State 
should  raise  its  revenues  from  sources  other  than  a  general  property  tax,  such  as 
through  or  by  means  of  the  excise,  liquor  and  corporation  taxes.  This  would 
result  practically  in  county  local  option,  making  the  county  the  unit  for  valua- 
tion. Ordinarily,  the  people  within  a  single  county  are  surrounded  by  the  same 
industrial  and  commercial  conditions,  and  if  they  are  free  from  the  imposition 
of  a  State  tax  upon  their  general  property,  they  may  adopt  such  a  rule  for  the 
valuation  of  their  property  as  will  best  suit  the  needs  of  their  special  com- 
munity. 

Fourth— The  chief  aim  of  tax  reform  to-day  should  be  the  arousing  and 
awakening  of  the  public  conscience  upon  the  subject  of  taxation.  It  is  unfor-^ 
tunately  true  that  our  crude,  unjust  and  unequal  systems  of  taxation  are', 
responsible  for  much  of  the  official  corruption  and  personal  dishonesty  that  j 
obtains  to-day.  The  unprecedented  growth  of  the  country  has  produced  the 
need  of  enormous  public  expenditures  which  must  be  met  by  increased  taxation. 
If  we  continue  a  system  by  which  the  larger  portion  of  the  wealth  of  the 
country  escapes   its   share  of  this  taxation  burden   we   are  tending  toward   a 


i6  THE   NATIONAL   CIVIC   FEDERATION. 

condition  of  affairs  which  is  unbearable  and  must  produce  revolution  unless 
checked  by  a  change  in  the  method  of  taxation  which  will  produce  approximate 
justice  and  equality. 

The  Chairman:  Gentlemen,  I  have  no  doubt  that  many  of  those  present 
will  find  illustrations  in  their  own  conditions  of  what  we  have  just  heard  from 
Senator  Garfield.  The  subject  is  now  open  for  discussion,  and  we  shall  be 
glad  to  hear  from  any  one  who  desires  to  discuss  this  paper, 

Mr.  Wright,  of  Lansing,  Mich.:  Mr  Chairman,  I  would  simply  state  as 
a  matter  of  information  that  in  my  own  State  we  have  increased  the  personal 
valuation  in  one  year,  twenty-five  times,  or,  rather,  ten  times  as  much  as  our 
friend's  State,  Ohio,  has  succeeded  in  doing  in  the  twenty-five  years  he  speaks 
of.  That  is  largely  due,  as  we  believe,  to  the  fact  that  in  our  last  legislature 
provision  was  made  for  requiring  a  sworn  statement  by  the  individual.  At 
the  same  time,  the  Assessor  is  not  bound  by  that.  If  he  does  not  deem  it 
equitable  he  makes  his  assessment  upon  his  own  valuation. 

Mr.  Brainard,  of  Delaware:  Mr.  Chairman,  I  suppose  it  is  not  in  order 
for  the  smallest  State  to  do  the  most  talking,  but  I  see  we  are  all  afflicted  alike. 
We  all  have  trouble  with  personal  property  taxation.  Senator  Garfield  sug- 
gests as  one  of  the  remefdies,  that  corporation  stock  should  be  taxed  to  the 
corporation  and  not  to  the  individual,  I  would  like  to  ask,  for  information, 
what  he  would  do  of  what  he  would  suggest  in  regard  to  the  stock  of  the 
corporation  where  the  corporation  was  outside  of  the  State.  The  reason  I 
ask  the  question  is  this,  that  we  might  tax  the  stock  of  State  corporations  and 
by  so  doing  induce  investors  to  invest  their  money  outside  of  the  State  and 
thereby  injure  the  State's  interests.  How  would  Senator  Garfield  treat  that 
matter  ? 

Mr.  Garfield:  Mr.  Chairman,  that  is  certainly  a  very  pertinent  question, 
coming  from  Delaware.  The  States  of  the  West  have  attempted  in  some  way 
to  tax  Delaware  and  New  Jersey  corporations.  The  method  which  is  adopted 
in  Ohio,  and  is  apparently  working  satisfactorily,  is  this.  Any  foreign  corpo- 
ration seeking  to  do  business  in  the  State  must  make  a  return  to  the  Secretary 
of  State  setting  forth  its  resources,  its  capital  stock,  its  liabilities,  its  plant 
within  the  State  of  Ohio,  the  valuation  of  that  plant  in  proportion  to  the  total 
valuation  of  the  property  of  the  corporation;  also  a  list  of  the  stockholders  of 
the  corporation.  All  the  stockholders  resident  in  Ohio  may  then  deduct  from 
the  value  of  the  stock  the  proportionate  value  of  the  property  of  the  corpora- 
tion within  the  State  of  Ohio.  By  that  means  the  foreign  corporation  is  com- 
pelled to  make  practically  the  same  return  that  the  domestic  corporation  must 
make,  and  by  giving  a  list  of  its  stockholders  they  then  may  be  reached  in  the 
counties  where  they  reside.  In  Ohio  we  must  still  impose  a  personal  property 
tax,  but  by  this  method  we  may  bring  that  property  to  light  so  that  it  may  be 
taxed,  and,  at  the  same  time,  to  avoid  double  taxation,  deduct  the  amount  of 
the  property  which  is  chargeable  against  the  corporation  itself  on  its  business 
done  in  Ohio.  Hovi  that  is  going  to  work  we  can  not  now  say.  The  law  was 
passed  a  year  and  a  half  ago,  and  the  first  returns  will  be  completely  made 
this  year.  But  the  foreign  corporation  can  readily  be  made  to  return  under 
the  law  for  the  reason  that  if  they  do  not  make  the  return  they  are  subject  to 
the  inconvenience  of  an  attachment  in  any  action  that  may  be  brought  against 
them,  on  the  ground  of  non-residence;  in  the  second  place,  they  can  not  defend 
or  bring  an  action  until  they  have  complied  with  the  statute  and  designated  a 
certain  agent  within  the  State  upon  whom  service  may  be  made,  and  by  whom 


NATIONAL   CONFERENCE   ON    TAXATION.  17 

action  may  be  instituted.  In  that  way  it  is  believed  the  return  of  a  foreign 
corporation  rnay  be  compelled  as  to  their  property  so  that  it  may  be  placed  on 
the  duplicate  of  Ohio. 

Mr.  Crandon,  of  lUinois:  Mr.  Chairman,  if  the  State  which  authorizes 
the  existence  of  a  corporation  taxes  its  stock  and  property  in  full,  how  then 
is  it  fair  to  the  stockholder  in  another  State  to  tax  him  on  the  property  which 
he  holds,  simply  deducting  from  his  share  of  that  taxation  that  part  of  the 
value  of  the  company's  property  which  happens  to  be  located  in  that  State, 
and  if  it  has  no  property  in  the  State  then  he  is  required  to  pay  taxes  to  the 
State  to  which  the  corporation  owes  fealty,  first,  and  second  to  the  State  in 
which  he  resides,  and  where  the  corporation  has  no  property? 

Mr.  Garfield  :  Mr.  Chairman,  I  do  not  know  that  the  question  is  addressed 
to  me,  but  I  will  say  as  far  as  Ohio  is  concerned  we  all  say  amen  to  a  proposi- 
tion that  is  eminently  unfair,  but  unfortunately  under  our  constitution  we  are 
compelled  to  tax  stock  of  foreign  corporations,  and  the  Supreme  Court  has 
held  that  we  cannot  evade  that  provision  of  the  constitution.  It  does  amount 
to  double  taxation,  unquestionably. 

Mr.  Rodenbeck,  of  New  York:  Mr.  Chairman,  Senator  Garfield  has 
suggested  the  taxation  of  stock  as  a  part  of  the  capital  stock  of  corporations, 
rather  than  in  the  hands  of  original  holders.  That  is  the  provision  which 
prevails  in  New  York  State,  but  we  find  some  difficulty  in  respect  to  it.  Cor- 
porations practically  escape  taxation  on  their  capital  stock  under  the  decisions 
of  the  courts,  so  that  while  the  stock  is  exempt  in  the  hands  of  the  individual, 
practically  it  is  also  exempt  as  a  part  of  the  capital  stock  of  the  corporation, 
that  captial  stock  being  valued  at  the  value  of  the  tangible  property  of  the 
corporation  and  the  Assessors  not  being  directed  to  take  into  account  as  a 
part  of  the  tangible  property  the  value  of  the  franchise  of  the  corporation. 
In  New  York  we  have  recently  made  public  franchises,  the  right  to  operate 
in  public  streets  and  places,  real  estate;  so  that  certainly  in  corporations  of  that 
character,  debts  being  largely  contracted  upon  the  strength  of  the  franchises 
of  the  corporation  after  you  have  estimated  the  amount  of  the  tangible  property 
of  the  corporation,  you  will  find  that  the  debts  vastly  exceed  the  value  of  the 
capital  stock  under  the  rule  for  estimating  that  value  as  laid  down  by  the 
courts.  So  that  I  say  under  the  method  of  taxing  the  stock  to  the  corporation 
as  a  part  of  its  capital  stock  we  find  that  stock  escapes  taxation. 

Mr.  Niles,  of  Maryland:  Mr.  Chairman,  I  would  like  to  get  exactly  the 
idea  of  the  gentleman  from  Ohio  in  regard  to  Delaware  corporations.  With 
the  permission  of  the  Chair  I  would  like  to  ask  if  I  understood  him  rightly. 
The  Delaware  corporation  that  does  business  in  Ohio  makes  a  return  of  all 
its  property,  as  I  understand  it,  in  the  first  place,  its  real  estate  situated  in 
Delaware,  New  York  and  wherever  else  it  may  be,  and  all  its  other  property; 
it  also  returns  its  number  of  stockholders  and  shares  of  stock,  and  from  the 
gross  value  of  all  its  property  is  deducted  simply  the  real  estate  in  Ohio.  Is 
that  the  proposition? 

Mr.  Garfield:     Real  estate  and  such  personal  property  as  a  manufacturing 
corporation  may  be  compelled  to  return. 
Mr.  Niles:     Simply  in  Ohio? 
Mr.  Garfield:     In  Ohio,  yes. 

Mr.  Niles:  Then  that  remainder  is  a  dividend  that  is  divided  among  the 
shares  of  stock  and  that  gives  the  value  of  each  share  of  stock  for  taxable 
purposes  in  Ohio,  and  then  those  shares  are  sent  to  the  Auditor  of  the  County 


1 8  THE   NATIONAL   CIVIC   FEDERATION. 

and  the  deduction  is  to  be  made  on  the  value  of  this  stock  as  so  found,  and  the 
tax  is  then  paid  at  the  regular  county  rate  without  deduction  for  any  property 
which  the  corporation  may  own  outside  of  Ohio. 

Mr.  Garfield:  Mr.  Chairman,  the  deduction  is  made  but  it  is  simply  the 
proportion,  it  is  not  a  division  of  their  property;  it  is  simply  to  get  a  portion 
of  their  property  taxed  in  Ohio,  as  against  the  corporation,  and  deducting 
that  from  the  total  valuation  of  the  stock;  so  that  it  is  simply  allowing,  as 
the  courts  have  now  held,  the  stockholder  to  deduct  that  proportion  of  the 
corporation  property  which  bears  its  tax  within  the  State  of  Ohio. 

Mr.  Niles  :  Mr.  Chairman,  as  I  understand  it,  that  amounts  to  this :  That 
Ohio  taxes  in  the  first  place  corporate  property  within  the  State  of  Ohio 
<iirectly  to  the  corporation,  then  it  taxes  the  holders  of  the  stock  on  the  same 
basis  as  if  all  the  other  property  of  the  corporation  were  in  Ohio,  too. 
^  Mr.  Seligman:  Mr.  Chairman,  if  I  may  be  permitted  to  say  just  a  word 
on  this  general  question,  I  think  that  a  very  slight  investigation  into  the 
actual  methods  of  taxing  corporations  in  this  country  would  show  that  we 
have  scarcely  begun  the  attempt  to  solve  the  problem  in  the  right  way.  The 
gentleman  from  New  York  has  told  us  of  the  undoubted  difficulty  which 
exists  in  that  State.  The  representative  from  Pennsylvania  could  tell  us  that 
Pennsylvania  avoids  the  difficulty  alluded  to  by  the  speaker  from  New  York 
by  making  corporations  pay,  not  alone  on  their  capital  stock,  but  also  upon 
their  debts,  their  mortgage  debts,  so  that  in  Pennsylvania  the  corporations  can- 
not evade  the  tax  as  they  do  in  New  York.  Somebody  else  might  come  along 
and  say  that  even  in  Pennsylvania  they  had  not  fully  met  the  difficulty,  because 
in  Pennsylvania  the  courts  have  held  that  the  State  cannot  tax  such  mortgage 
bonds  of  a  railway  or  other  corporation  as  are  held  by  non-residents.  And  so 
we  might  go  on  from  one  point  to  another.  It  all  brings  us  simply  to  this 
conclusion,  that  it  is  absolutely  futile  for  any  State  to  think  that  it  alone  can 
solve  the  problem  in  a  satisfactory  way.  What  we  need  is  a  campaign  of 
education  in  this  country,  leading,  ultimately,  if  necessary  to  a  change  of 
constitutional  methods.  Without  that  we  cannot  bring  about  the  inter-State 
co-operation  or  system  of  uniformity  agreed  upon,  I  will  not  say  by  all  the 
fifty  States  of  the  Union,  but  at  all  events  by  certain  of  the  contiguous  States 
where  the  corporations  carry  on  their  work,  and  where  the  ownership  of 
securities  happens  to  be  most  widely  disseminated;  so  that  that  branch  or 
group  of  States,  at  all  events,  will  make  a  beginning,  and  agree  to  assess  cor- 
porate property  on  some  approved  but  uniform  basis.  It  makes  no  difference 
what  basis  you  accept  as  long  as  you  all  agree  to  conform  to  it  in  the  same 
way,  and  to  apportion  the  tax  among  the  States  according  to  some  definite 
method,  whether  it  be  mileage,  whether  it  be  the  situs  of  the  property,  whether 
it  be  the  location  of  the  security,  or  whatever  other  method  you  choose.  When 
the  period  comes  that  we  can  look  forward  to  such  an  inter-State  agreement 
it  will  be  time  to  discuss  the  subject  in  all  its  details  and  to  decide  which  of 
the  methods  is  the  best  one  to  adopt.  The  point  I  wanted  to  emphasize,  however, 
is  that  it  is  useless  to  expect  the  difficulty  to  be  solved  without  mutual  co-opera- 
tion and  without  inter-State  agreement. 

The  Chairman  :  I  would  call  attention  to  the  fact  that  the  subject  of 
inter-State  corporations  is  more  specifically  set  apart  for  this  afternoon,  and 
I  would  suggest  that  discussion  be  confined  now  to  the  other  subjects  treated 
by  Senator  Garfield,  such  as  the  taxation  of  personal  property,  listing,  etc.  In 
that  way  we  can  clear  the  decks  as  we  go  on.  We  will  be  glad  to  hear  further 
from  any  gentleman. 


NATIONAL   CONFERENCE   ON   TAXATION.  19 

Mr.  Spahn,  of  Rochester,  N.  Y. :  Mr.  Chairman,  the  thing  that  impressed 
me  most  in  reference  to  the  two  very  exhaustive  and  able  papers  read  here 
is  this,  that  Senator  Garfield  substantially  put  himself  upon  record  as  saying 
that  were  a  wise  and  equitable  system  of  corporate  taxation  adopted  it  alone 
would  suffice  to  pay  all  the  expenses  of  government.  Fundamentally  that,  I 
think,  should  interest  us  most  as  individuals.  So  far  as  I  am  personally 
concerned  there  is  nothing  that  afflicts  me  in  the  least  in  relation  to  the  corporate 
taxation.  I  have  no  stock  in  any  corporation,  I  am,  however,  an  extensive 
holder  of  real  estate  in  one  of  the  municipalities  of  this  Commonwealth,  and 
when  the  matter  of  personal  taxation  is  adverted  to  it  comes  home  into  a 
domain  where  I  am  interested.  If  there  is  any  device  by  which  the  private 
individual  can  be  spared  the  enormous  burden,  and  I  mean  now,  particularly, 
the  individual  who  is  an  owner  of  real  estate,  the  enormous  burden  that  is 
now  loaded  upon  his  back,  I  welcome  any  suggestion  which  points  to  that  result. 
For  my  part  in  resolving  the  question  of  taxation  generally  some  years  ago 
I  concluded  that  so  far  as  the  private  individual  was  concerned,  with  a  wise 
and  honest  administration,  he  might  be  spared  from  all  burdens,  and  the  State 
might  be  rendered  a  self-supporting  institution,  just  as  any  private  institution 
has  been  rendered  by  the  genius  of  American  mind.  I  have  no  hesitation  in 
saying  that  if  the  same  amount  of  energy  were  devoted  by  the  politics,  by  the 
statesmanship  of  this  country,  to  that  problem  that  is  devoted  to  the  matter 
of  arranging  a  party  organization  for  a  political  success  in  a  campaign,  the 
problem  would  be  solved  without  any  trouble  whatever.  We  are  a  nation  of 
geniuses.  There  is  no  question  about  that.  We  have  solved  the  matter  of 
political  organization  so  completely  that  we  are  able  to  furnish  the  executive 
head  of  the  government  all  of  the  advice  he  may  need  unofficially  to  run  the 
government,  and  when  we  are  able  to  do  that,  which  may  be,  perhaps,  an 
ironical  reflection  on  the  situation,  I  think  that  there  is  nothing  in  the  field 
of  politics  which  we  can  fail  of  doing.  A  country  that  is  able  to  ramify  with 
steel  tracks  run  by  a  single  corporation,  fifty  States,  and  make  the  corporation 
not  only  self-supporting  but  dividend-paying  as  the  result  of  genius,  of  indus- 
trious enterprise,  I  have  no  hesitation  in  saying,  with  the  statesmanship  we 
could  put  into  the  field,  would  be  able  to  absolve  absolutely  the  individual 
from  any  burden  for  the  support  of  government;  and  that  I  think  is  the  most 
important  problem  that  a  gathering  of  this  kind  has  before  it. 

The  Chairman:  If  there  are  any  gentlemen  who  can  give  us  news  from 
any  State  where  personal  property  taxation  is  a  success  we  will  be  glad  to  hear 
from  them. 

Mr,  Wright:  Mr,  Chairman,  In  my  State,  Michigan,  we  have  had  the 
question  of  equal  taxation  before  us  for  the  last  few  years,  and  all  minds  seem 
to  work  in  one  direction,  but  none  of  them  has  been  quite  as  candid  as  our 
friend  who  has  just  taken  his  seat,  who  seems  to  put  it  in  this  way,  that  the 
true  ideal  for  tax  reform  would  be  to  tax  the  other  fellow. 

Mr,  Williams,  of  Maryland:  Mr,  Chairman,  on  this  subject  of  the 
taxation  of  property  it  seems  to  me  that  we  have  as  the  property  that  ought 
to  be  listed  by  the  Tax  Assessors,  actual  real  estate  and  actual  personal  property, 
and  we  have  in  addition  to  that  franchises  granted  by  the  State  and  franchises 
in  the  nature  of  special  privileges.  It  is  generally  agreed  now  that  these 
ought  to  be  taxed  by  a  system  of  rentals.  The  only  remaining  property  is 
really  not  property  at  all;  that  is,  choses  in  action.  As  a  matter  of  fact,  when 
we  have   taxed   all   the   existing  property   in   the   world   and   charged   all   the 


20  THE   NATIONAL   CIVIC    FEDERATION. 

corporations  rent  for  their  franchises  we  have  reached  by  way  of  taxation 
all  the  property  there  is  in  the  world,  and  that  is  all  there  is  to  it.  What 
we  are  now  hinting  at  doing  is  to  tax  property  that  does  not  exist ;  that  is, 

Ichoses  in  action.  If  you  want  to  tax  choses  in  action  there  is  only  one  way 
to  do  it,  and  that  is  by  an  income  tax. 
Mr.  Bromhall,  of  Ohio:  Mr.  Chairman,  I  wish  to  make  a  suggestion 
along  the  line  of  the  remarks  of  the  last  speaker,  Mr.  Williams.  Taxation 
might  be  defined  as  taking  private  property  for  public  purposes.  Another 
thought  suggested  by  a  gentleman  who  spoke  just  a  moment  ago,  that  it  might 
be  well  in  taxation  to  only  take  public  property  for  public  purposes,  and  when 
we  find  what  public  property  truly  is  there  will  no  longer  be  any  necessity 
for  taxing  private  property.  One  of  the  things  that  may  be  properly  called 
public  property  is  the  privileges  which  government  sometimes  confers  on 
individuals  or  corporations.  Wherever  we  find  any  necessity  or  find  that  a 
State  is  conferring  a  benefit  on  some  individual  or  some  corporation  which 
is  not  common  to  all  the  individuals  of  the  State,  there  we  find  a  fund  which 
is  properly  a  public  fund  and  which  may  be  properly  applied  to  pubHc  purposes. 
Therefore,  I  maintain  before  the  question  as  to  whether  we  shall  tax  choses 
in  action  or  personal  property  which  is  the  result  of  human  effort  we  must  first 
find  whether  or  not  there  is  not  this  public  fund  to  draw  upon,  and  when  that 
public  fund  is  found  let  it  be  drawn  upon  and  exhausted  before  we  raise  the 
question  of  taxing  private  property  at  all. 

Mr.  Curtis,  of  Wisconsin:  Mr.  Chairman,  I  wish  to  add  an  item  of 
testimony  to  the  propositon  of  Senator  Garfield.  In  Wisconsin  we  believed  for 
a  considerable  period  of  time  we  had  a  system  for  the  listing  of  personal 
property  by  the  property  owner  under  oath.  That  system  in  1888  was  abolished, 
and  since  that  time  no  sworn  returns  of  personal  property  are  required 
except  choses  in  action  alone,  if  they  may  be  called  property ;  but  when  the 
\  change  in  the  law  was  made  Assessors  were  given  some  measure  of  power  to 
/.'assess  personal  property  by  estimate.     In  a  single  year  our  personal  property 


assessment  increased  some  60  per  cent.,  whereas  in  ten  years  before  that  the 
increase  had  only  been  about  10  per  cent,  per  annum. 

Mr.  Garfield:  May  I  ask  the  gentleman  how  long  that  increase  has 
continued? 

Mr.  Curtis:  It  has  not  continued  at  that  rate,  but  it  simply  illustrates  that 
an  inquisitorial  system  did  not  succeed  in  Wisconsin,  but  this  system  has 
worked  beneficially.     The  increase  mentioned  was  substantially  maintained. 

The  Chairman  :  You  have  reference  to  a  system  whereby  the  Assessor 
puts  on  his  own  estimate? 

Mr.  Curtis  :  You  place  the  responsibility  upon  the  Assessor  giving  the 
property  owner  an  opportunity  to  be  heard  before  a  local  Board  in  case  the 
Assessor's  estimate  should  fix  too  high  a  rate  upon  his  property. 

The  Chairman:  The  Assessor  in  such  case  bases  his  judgment  upon  a 
taxpayer's  mode  of  living,  does  he  not? 

Mr.  Curtis:  Upon  such  information  as  he  can  practically  obtain,  having 
power  to  examine  the  taxpayer  and  other  persons  under  oath,  if  he  chooses, 
but  not  requiring  any  sworn  list. 

Mr.  Niles,  of  Maryland:  Have  there  been  any  prosecutions  or  convictions 
for  perjury  in  the  matter  of  tax  returns  in  Ohio  or  any  other  State? 

Mr.  Garfield:  We  do  not  know  anything  about  this  life,  but  hereafter 
I  imagine  there  will  be  a  great  many. 


NATIONAL   CONFERENCE   ON   TAXATION.  21 

Mr.  Niles:  I  am  not  referring  to  the  other  life,  but  would  like  to  ask 
the  gentleman  if,  as  a  matter  of  fact,  in  this  life  there  have  been  any  in  Ohio? 

Mr.  Garfield:     None  whatever. 

The  Chairman:  Gentlemen,  there  are  many  subjects  connected  with  this 
immediate  one  under  discussion  which  perhaps  we  can  defer  to  a  later  time. 
We  have  with  us  Dr.  Max  West,  of  Washington,  of  the  Industrial  Commission, 
whom  I  have  the  honor  to  present,  and  who  will  read  a  paper  on  "The  Taxa- 
tion of  the  Farmer." 

THE  TAXATION  OF  THE  FARMER. 

BY    MAX    WEST. 


The  most  obvious  remedy  for  the  universal  difficulties  growing  out  of  the 
attempt  to  tax  per.sonal  property  would  be  the  discontinuance  of  the  attempt; 
but  the  proposal  to  exempt  personal  property  from  taxation  has  never  been 
popular  among  farmers.  It  has  seemed  to  many  that  as  the  farmers  own  so 
large  a  portion  of  the  land  of  the  country,  the  exemption  of  other  forms  of 
property  and  consequent  increase  of  the  taxes  on  land  would  fall  most  heavily 
upon  them.  Even  under  the  present  system,  the  complaint  is  made  by  farmers 
and  on  their  behalf  that  the  escape  of  personal  property  from  assessment  throws 
an  undue  burden  of  taxation  upon  real  estate,  with  the  effect  of  depreciating 
the  value  of  land.  It  is  often  assumed  that  this  heavier  taxation  of  real  estate 
as  compared  with  personalty  is  necessarily  a  disadvantage  to  the  farmer,  and  so 
it  is  urged  that  instead  of  relieving  large  classes  of  property  from  taxation, 
the  administration  of  existing  laws  should  be  so  improved  as  to  reach  the 
greatest  possible  amount  of  property.  But,  on  the  other  hand,  it  may  be  argued 
that  the  land  of  the  farmer  is  of  so  little  value  compared  with  the  city  building 
sites,  acre  for  acre,  as  to  more  than  counterbalance  its  greater  extent,  and  that 
the  overburdening  of  the  farmer  is  due  not  so  much  to  the  tax  on  land  as  to  the 
tax  on  personal  property. 

In  order  to  determine  whether  farm  owners  as  a  class  would  gain  or  lose 
by  the  exemption  of  a  certain  kind  of  property,  to  be  made  up  by  heavier 
taxation  of  the  remainder,  it  is  necessary  to  ascertain  whether  their  assessments 
would  be  diminished  more  or  less,  proportionately,  than  the  assessments  of 
other  classes.  That  is  to  say,  if  it  is  proposed  to  exempt  personal  property,  the 
question  is  whether  the  assessment  of  personalty  is  a  greater  or  less  proportion 
of  the  total  assessment  on  farms  than  in  cities  and  towns. 

As  there  are  no  available  assessment  statistics  distinguishing  between  strictly 
agricultural  and  other  rural  property,  it  is  necessary  to  make  the  comparison 
simply  between  urban  and  non-urban  property.  Statistics  of  assessed  valuation, 
however  worthless  if  taken  as  representing  true  values,  are  plainly  the  figures 
to  be  used  for  this  purpose,  for  the  question  is  not  whether  farmers  own  more 
or  less  personal  property  in  proportion  to  their  total  wealth  than  other  classes  of 
the  population,  but  rather  what  are  the  relative  values  of  personal  property 
which  are  found  by  the  Assessors,  and  on  which  taxes  are  thereafter  actually 
paid.  It  is  quite  possible  that  there  may  be  a  decided  difference  between  the 
two  sets  of  facts.  For  instance,  the  personalty  may  be  a  larger  proportion  of  the 
total  wealth  in  the  cities  than  in  the  country,  and  yet  be  of  kinds  which 
escape  assessment  to  such  an  extent  that  the  returns  of  the  Assessors  will  show 
a  greater  proportion  of  personalty  in  the  country  than  in  the  cities.     By  taking 


22  THE   NATIONAL   CIVIC   FEDERATION. 

assessed  valuations,  it  is  possible  to  ascertain  the  actual  distribution  of  taxation, 
and  the  probable  effect  of  proposed  changes  in  the  taxing  system  upon  the 
different  kinds  of  property  and  upon  different  classes  of  population. 

Most  of  the  writers  who  have  investigated  this  subject  have  reached  the 
conclusion  that  the  exemption  of  personal  property  would  benefit  the  farmer, 
but  the  contrary  opinion  is  maintained  very  emphatically  by  Dr.  Spahr,  as  well 
as  by  many  of  the  farmers  themselves.  As  to  the  effect  of  exempting  real 
estate  improvements,  there  is  a  more  nearly  even  division  of  evidence  and  of 
opinions.  The  contention  of  Mr.  Henry  George  and  Mr.  Shearman  that  this 
also  would  benefit  the  farmer  seems  to  be  supported  by  Massachusetts  figures, 
but  contradicted  by  statistics  relating  to  Pennsylvania,  West  Virginia,  the  District 
of  Columbia,  and  a  number  of  Western  States.  This  suggests  that  conditions 
may  vary  greatly  from  place  to  place,  and  that  any  general  conclusion  should 
be  based  upon  statistics  covering  the  entire  country. 

I  have  compiled  tables  showing  the  assessed  valuation  of  urban  and  rural 
communities  in  all  the  States  and  organized  Territories  except  Hawaii,  distin- 
guishing in  all  cases  between  real  and  personal  property,  and  wherever  possible 
between  land  and  improvements,  and  between  tangible  and  intangible  personalty. 
The  tables  are  made  up,  with  one  or  two  exceptions,  from  the  assessments  of 
1896,  that  being  the  latest  year  for  which  reports  were  generally  available  when 
the  tabulation  was  begun.  Unfortunately,  the  reports  of  comparatively  few 
States  give  the  assessments  of  land  and  improvements  separately;  and  in 
many  cases  it  is  impracticable  to  divide  the  assessments  of  personalty  into 
tangible  and  intangible  property.  The  line  between  urban  and  rural  communi- 
ties is  of  necessity  drawn  somewhat  arbitrarily,  by  reference  to  population; 
and  the  dividing  line  is  placed  at  a  population  of  8,000,  partly  because  that  is 
a  point  at  which  the  Census  Office  draws  the  line.  In  most  of  the  Southern 
and  Western  States  the  assessments  are  reported  only  by  counties,  not  by 
towns;  hence  it  is  necessary  in  these  cases  to  take  the  counties  containing 
cities  of  more  than  8,000  inhabitants  as  urban  counties,  and  the  others  as 
rural  counties. 

Taking  the  whole  country  together,  personalty  is  found  to  represent  21  per 
cent  of  the  total  assessment  in  the  rural  districts,  as  compared  with  i8]^"^er  cent 
in  the  urban  districts.  But  as  the  taxation  of  property  is  a  State  matter,  it  is 
much  more  important  to  know  how  the  assessments  compare  in  the  separate 
States  and  Territories.  The  proportion  of  the  total  assessments  represented  by 
personal  property  is  found  to  be  greater  in  the  rural  than  in  the  urban  districts 
in  thirty-six  cases  out  of  forty-nine,  or  in  one  more  than  five-sevenths  of  all 
the  cases,  the  reverse  being  true  in  the  District  of  Columbia  and  in  the  States 
of  Maine,  Vermont,  Connecticut,  New  York,  Pennsylvania,  Maryland,  West 
Virginia,  Mississippi,  Tennessee,  Michigan,  Kansas,  and  California.  It  is 
noticeable  that  most  of  the  exceptions  are  found  in  Eastern  States,  the  only 
ones  west  of  the  Mississippi  represented  in  the  list  being  Kansas  and  California. 

On  the  other  hand,  the  proportion  of  intangible  personalty,  as  might  be 
expected,  is  greater  in  the  urban  than  in  the  rural  communities  in  a  majority 
of  the  commonwealths  for  which  the.  figures  are  given;  that  is  to  say,  in 
fifteen  out  of  twenty-seven  cases,  Iowa  showing  the  same  proportion  in  the 
urban  and  rural  counties.  The  assessments  of  land  and  improvements  are 
separately  reported  in  only  sixteen  cases.  The  ratio  of  the  assessment  of  land  to 
the  aggregate  assessment  is  found  to  be  greater  in  the  urban  than  in  the  rural 


NATIONAL   CONFERENCE   ON   TAXATION. 


23 


districts  in  a  majority  of  these  cases,  namely,  in  the  District  of  Columbia  and  in 
eight  States,  while  the  reverse  is  found  to  be  true  in  seven  Commonwealths. 

The  conclusion  is  that  in  at  least  five-sevenths  of  the  States  and  Territories 
the  rural  districts  would  gain  by  the  exemption  of  personal  property  from 
taxation,  although  apparently  the  exemption  of  intangible  property  alone  would 
in  a  small  majority  of  cases  relieve  the  urban  at  the  expense  of  the  rural  districts. 
If  intangible  property  is  to  be  relieved  from  taxation,  therefore,  the  exemption 
must  in  fairness  to  the  farmers  be  extended  to  tangible  personalty  also.  The 
exemption  of  both  personal  property  and  improvements,  leaving  only  land  to  be 
assessed,  would  also,  in  a  bare  majority  of  the  cases  where  the  statistics  are 
obtainable,  leave  a  larger  proportion  of  the  assessment  in  force  in  the  country 
than  in  the  urban  communities. 

Generally  speaking,  therefore,  the  farmer  has  nothing  to  fear  from  the 
exemption  of  personal  property,  but  would  be  actually  benefited  by  it;  and  the 
knowledge  of  this  fact  ought  to  do  much  to  remove  one  of  the  chief  difficulties 
in  the  way  of  the  abolition  of  the  tax  on  personal  property ;  namely,  the  opposition 
of  the  farmers  themselves.  Another  fact  brought  out  by  the  statistics  is  that 
conditions  vary  greatly  from  place  to  place,  showing  that  each  State  must  to 
a  large  extent  work  out  its  own  salvation,  and  that  any  proposed  change  in  the 
taxing  system  should  be  based  upon  careful  statistics  showing  what  effect  the 
change  will  have  upon  the  distribution  of  taxation. 

Thus  far  I  have  been  considering  the  subject  from  the  farmer's  standpoint; 
but  there  may  be  opposition  to  the  exemption  of  personalty  in  the  cities  also, 
if  it  seems  likely  to  throw  an  increased  burden  of  taxation  upon  the  cities,  at 
least  unless  the  city  residents  are  convinced  that  they  are  now  bearing  less 
than  their  just  share  of  taxation.  The  feeling  has  long  been  gaining  ground 
in  many  quarters  that  the  farmers  bear  more  than  their  just  burden  of  taxation; 
but,  on  the  other  hand,  in  some  of  the  large  cities  complaints  are  frequently 
made  to  the  effect  that  the  cities  are  overburdened,  by  the  action  of  Boards  of 
Equalization  or  otherwise,  and  the  country  districts  unduly  favored. 

The  question  whether  the  farmers  are  unduly  burdened  by  the  property  tax 
may  be  considered  under  three  heads :  First,  real  estate ;  secondly,  personal 
property  in  general;    and  thirdly,  mortgages. 

As  far  as  real  estate  is  concerned,  the  data  for  a  statistical  study  of  the 
question  "with  reference  to  several  States  exist  in  official  documents  and  else- 
where, mainly  in  the  form  of  comparisons  of  assessed  valuations  with  the 
selling  or  estimated  true  value  of  real  property;  but  the  comparisons  are  not 
always  expressed  conveniently  in  percentages,  and  in  most  cases  the  figures 
have  required  to  be  rearranged  in  order  to  bring  out  the  contrast  between 
agricultural  and  city  property.  Although  the  statistics  bearing  on  this  subject  are 
not  as  complete  or  as  perfect  as  could  be  wished,  they  seem  to  warrant  the 
conclusion  that  in  the  Eastern  States,  at  least,  farms  are  usually  assessed  too 
high  as  compared  with  urban  real  estate.  For  the  Central  and  Western  States 
no  general  statement  can  be  made,  the  conditions  vary  so  greatly  from  place 
to  place. 

The  explanation  of  this  distinction  between  the  East  and  West  may  be 
found  in  the  abandonment  of  farms,  especially  in  New  England,  coupled  with 
the  tendency  to  retain  the  same  assessments  from  year  to  year.  As  prices  have 
fallen  in  response  to  the  lessening  demand  for  Eastern  farms,  the  assessments 
seem  not  to  have  been  revised  sufficiently  to  keep  pace  with  the  falling  values; 


24  THE   NATIONAL   CIVIC    FEDERATION. 

and  in  like  manner,  in  some  portions  of  the  West  there  seems  to  have  been  a 
failure  to  increase  the  assessments  as  rapidly  as  the  value  of  land  has  risen. 

As  to  whether  the  underassessment  of  town  lots  is  to  be  attributed  chiefly 
to  the  large  cities  or  to  the  smaller  places,  no  general  conclusions  can  be  drawn 
from  the  data  at  hand.  The  statistics  do  show,  however,  that  acre  property  in 
the  vicinity  of  large  cities  is  often  assessed  much  too  low,  as  compared  either 
with  the  city  or  with  farming  property.  This  is  shown,  for  example,  by  the 
very  low  assessments  of  acre  property  in  Philadelphia,  Allegheny,  and  Lacka- 
wanna Counties,  Pennsylvania;  in  Cuyahoga  County,  Ohiot  in  Cook  County, 
Illinois;  in  Hennepin  and  Ramsey  Counties,  Minnesota,  and  in  the  District  of 
Columbia.  That  is  to  say,  imdivided  property  in  the  vicinity  of  Philadelphia, 
Pittsburg,  Scranton,  Cleveland,  Chicago,  Minneapolis,  St.  Paul,  and  Washington, 
which  is  of  a  somewhat  speculative  character,  is  assessed  at  a  lower  percentage 
of  its  value  than  either  city  lots  or  farms.  Leaving  such  property  out  of 
account,  therefore,  the  average  assessment  of  strictly  rural  property,  including 
farms,  would  be  higher  than  indicated  by  the  figures  I  have  referred  to. 

So  much  for  real  estate.  It  is  impossible  to  make  any  corresponding 
comparison  between  the  assessed  and  true  values  of  personal  property,  the  neces- 
sary statistics  not  being  obtainable ;  but  there  is  some  evidence  tending  to 
show  that  personal  property,  also,  is  usually  assessed  more  nearly  at  its  true 
value  in  agricultural  districts  than  in  cities.  Professor  Plehn,  in  his  study  of 
"The  General  Property  Tax  in  California,"  brings  this  out  very  forcibly.  He 
says :  "But,  after  all,  the  payment  each  year  by  the  farmer  of  from  four  to  six 
per  cent  too  much  on  each  $ioo  of  his  real  estate  for  State  taxes  shrinks  into 
ridiculous  insignificance  when  compared  with  the  injustice  which  arises  from 
the  evasion  of  taxation  by  personal  property  owners.  This  again  adds  peculiarly 
to  the  burden  upon  the  farmer,  the  bulk  of  whose  personal  property  consists  of 
visible  tangible  implements,  stock,  and  household  goods." 

In  examining  the  reported  assessments  for  those  States  in  which  the  assess- 
ments of  personal  property  are  itemized,  it  is  very  noticeable  that  the  class  of 
property  which  is  most  elaborately  classified,  and  which  is  probably  most  fully 
returned,  is  live  stock,  or  farm  animals.  The  personal  property  tax  seems  to 
belong  properly  to  that  age  in  which  men's  wealth  was  reckoned  according  to  the 
number  of  their  cattle. 

There  is  a  very  general  agreement  among  students  of  the  subject  that  a 
larger  proportion  of  the  farmer's  personalty  is  assessed  for  taxation  than  of  the 
personalty  belonging  to  city  residents.  This  opinion  is  based  to  some  extent  upon 
considerations  of  the  differences  in  the  nature  of  the  property  in  the  two  cases, 
but  it  is  in  some  cases  supported  by  statistics  of  more  or  less  value,  which,  while 
not  amounting  to  absolute  proof,  at  least  establish  a  decided  probability  that  the 
proportion  of  all  existing  personalty  taxed  is  greater  in  the  country  than  in  the 
city.  It  may,  therefore,  be  stated  with  some  degree  of  confidence  that  where 
real  estate  is  taxed  more  heavily  in  the  country  than  in  the  cities  the  personal 
property  assessment  aggavates  the  inequality,  while  in  the  apparently  smaller 
number  of  States  where  real  estate  is  taxed  more  heavily  in  the  cities  than  in 
the  country  the  assessment  of  personalty  tends  to  counterbalance  this  inequality, 
and  may  throw  the  balance  against  the  country.  If  in  a  majority  of  the  States 
real  estate  taxes  are  more  burdensome  in  the  country  than  in  the  cities,  as  the 
statistics  seem  to  indicate,  the  taxes  on  real  and  personal  propety  together,  in 
all  probability,  discriminate  against  the  country  in  a  still  larger  number  of 
cases. 


NATIONAL   CONFERENCE   ON   TAXATION.  25 

Many  of  the  witnesses  before  the  Industrial  Commission,  especially  those 
testifying  on  the  subject  of  agriculture,  have  testified  that  in  their  respective 
States  the  farmers  pay  more  than  their  share  of  the  taxes.  Special  stress  has 
been  laid  upon  the  distinction  between  the  visible  personalty  of  the  farmer, 
which  cannot  escape  the  Assessor's  eye,  and  the  intangible  property  of  the  cities, 
which  is  hard  to  find;  but  several  witnesses  have  also  given  evidence  of  dissatis- 
faction among  the  farmers  growing  out  of  the  taxation  both  of  mortgages  and 
of  mortgaged  real  estate.  Thus  a  very  intelligent  farmer  from  West  Virginia 
declares  that  the  farmer  really  pays  the  tax  on  his  land,  and  pays  the  tax 
over  again  to  the  lender,  that  is,  in  increased  interest;  although,  as  a  rule,  the 
mortgages  are  not  listed  for  taxation.  The  Secretary  of  the  Ohio  State  Board  of 
Agriculture  states  the  situation  as  follows:  "The  owners  of  the  intangible 
property  actually  own  their  property,  while  the  man  who  pays  the  taxes  on  his 
real  estate  is  paying  for  the  privilege  of  calling  it  his  own  at  some  future  time." 
That,  it  seems  to  me,  hits  the  nail  on  the  head  as  far  as  the  double  taxation  of 
mortgaged  real  estate  is  concerned. 

That,  however,  is  a  case  in  which  it  is  much  easier  to  point  out  the  evil  than 
to  suggest  a  remedy.  Interest  rates  are  so  sensitive  to  changes  in  taxation  that 
it  seems  to  be  almost  impossible  to  make  the  mortgagee,  who  is  virtually  part 
owner  of  the  mortgaged  real  estate,  pay  his  share  of  the  tax.  But,  at  any  rate, 
by  doing  away  with  the  taxation  of  personal  property  in  general,  an  end  would 
l3e  put  to  double  taxation  of  mortgaged  real  estate. 

The  Chairman  :  We  should  be  glad  to  hear  now  from  any  of  the  gentle- 
men of  the  different   States  on  the  subject  treated  by  Dr.  West. 

A  Member  from  Indiana:  Mr.  Ciiairman,  over  in  our  State  we  find  since 
our  new  law  has  been  enacted  that  our  farmers  have  not  been  benefited  at 
all  by  looking  after  the  personal  property;  that  the  parties  who  were  supposed 
to  own  so  much  personal  property  are  paying  about  the  same,  but  that  the 
farmers  in  our  country  are  paying  a  much  greater  tax  now  than  they  did  a 
few  years  ago,  because,  it  seems,  that  they  hold  most  of  this  mortgage  paper. 
In  the  matter  o^  money  in  our  town  about  65  per  cent,  of  the  deposits  are 
made  by  farmers.  It  might  be  a  little  unpopular,  but,  after  all,  it  looks  to  me 
as  though  this  matter  would  have  to  be  remedied  in  some  way  by  looking  after 
real  estate.  For  instance,  I  sell  a  man  in  our  State  a  piece  of  property  for 
$4,000  and  he  can  only  pay  me  $2,000,  and  I  take  a  mortgage  for  $2,000.  Then 
the  Assessor  will  assess  that  man  $1,500,  and  I  pay  on  my  $2,000  at  its  face.  It 
seems  to  me  as  though  in  some  way  a  remedy  should  be  worked  out  in  reference 
to  this  matter. 

Mr.  Crandon,  of  Illinois :  Mr.  Chairman,  we  had  a  Tax  Commission  which 
worked  over  a  year  on  the  question  of  how  to  reach  personal  property.  The 
deliberate  judgment  of  that  Commission  was  that  if  it  was  constitutional  to 
do  so,  justice  would  be  secured  by  abolishing  the  tax  on  personal  property 
altogether.  Had  it  been  within  the  limits  of  the  constitutional  provision  the 
Commission  of  which  I  was  a  member  would  have  so  advised. 

Now,  in  reference  to  these  poor  farmers  who  are  so  generally  the  subject 
of  commiseration,  I  have  just  a  little  bit  of  personal  experience  to  give.  Last 
March  it  was  necessary  for  me  to  examine  this  question,  to  present  the  matter 
to  the  Executive  Council  of  the  State  of  Ohio.  A  little  examination  showed 
that  of  the  personal  property  that  was  assessed  in  Iowa,  the  amount  of  moneys 
in  banks  and  bank  stock  was  greater  than  one-half  of  all  the  personal  property 


\ 


26  THE   NATIONAL   CIVIC   FEDERATION. 

that  was  assessed;  and  it  was  further  found  that  80  per  cent,  of  the  bank 
stock  and  75  per  cent,  of  deposits  belonged  to  the  farmers. 

A  Member  from  Ohio:  Mr.  Chairman,  the  question  has  been  asked  what 
would  it  profit  a  man  if  he  should  gain  the  whole  world  and  lose  his  own 
soul.  I  have  been  inclined  to  think  that  the  question  might  properly  be  asked 
in  connection  with  the  personal  property  tax.  We  would  better  lose  a  por- 
tion of  the  personal  property  than  to  become  a  confirmed  nation  of  perjurers. 
But  there  is  not  so  much  involved  in  the  question  if  we  look  at  it  right. 
I  caused  an  investigation  of  the  return  of  taxes  in  my  own  State,  and  I 
discovered  that  the  owners  of  real  estate  in  the  State  owned  seven-eighths  of 
all  the  personal  property  in  the  State.  So  that  when  the  owners  of  real  estate 
and  the  owners  of  personal  property  raise  the  question  as  to  whether  we  should 
abolish  the  personal  property  tax,  it  is  well  to  remind  them  that  there  is 
only  about  one-eighth  of  the  property  taxed  which  is  involved  in  the  discussion. 

The  Chairman  :  We  should  be  glad  to  hear  any  further  remarks  on  this 
question. 

A  Member  from  Indiana:  Mr.  Chairman,  I  do  not  quite  understand  the 
basis  of  this  discussion  in  reference  to  personal  property  when  it  is  admitted 
that  the  great  difficulty  is  that  you  do  not  reach  the  personal  property.  Now 
all  the  discussion  that  has  been  had  here  this  morning  is  on  the  basis  of  the 
personal  property  that  is  reached.  It  seems  to  me  you  are  not  reaching  the 
difficulty  at  all  when  you  propose  to  throw  this  aside  and  not  tax  personal 
property,  but  that  the  difficulty  is  to  be  found  by  reaching  personal  property. 
I  cannot  give  estimates.  T  do  not  know.  There  is  no  one  here  who  knows 
what  the  personal  property  of  the  country  is.  Nobody  knows  its  value  because 
we  do  not  reach  its  value,  but  it  seems  to  me  if  you  relieve  personal  property 
entirely  from  taxation  through  the  fear  that  we  are  about  to  become  a  nation 
of  perjurers  you  are  missing  the  remedy  entirely.  What  we  want  is  some  way 
to  get  hold  of  personal  property,  to  find  out  what  it  is.  The  gentleman  from 
Maryland  said  there  was  a  way  to  do  it  and  that  was  to  make  an  inheritance 
tax.  It  seems  to  me  there  ought  to  be  some  other  way  of  doing  it.  I  do  not 
know  what  it  is,  but  it  seems  to  me  our  discussion  here  ought  to  center  on  some 
way  of  reaching  the  personal  property  itself.  As  a  matter  of  fact  we  know 
that  the  great  wealth  of  the  nation  to-day,  its  increase,  is  in  personal  property, 
or,  if  you  do  not  choose  to  call  it  personal  property,  though  I  insist  it  is  personal, 
property,  although  it  may  be  choses  in  action,  the  great  wealth  of  the  nation, 
that  which  is  dealt  in  day  after  day,  that  in  which  fortunes  are  lost  day  after 
day,  is  the  personal  property  of  the  country.  Men  are  putting  their  wealth 
into  the  personal  property  of  the  country.  The  men  who  become  richest  are  the 
men  who  evade  taxation  and  go  through  life  not  paying  a  cent  to  support  the 
government,  if  you  take  the  tax  off  of  personal  property  and  impose  it  upon< 
real  estate. 

Mr.  Purdy,  of  New  York:  Mr.  Chairman,  it  seems  to  me  some  attention 
should  be  devoted  to  the  fact  that  it  is  impossible,  made  so  by  nature,  to 
tax  the  owner  of  a  chose  in  action  by  taxing  the  chose  in  action.  I  might 
illustrate  that  a  little  for  the  benefit  of  some  who,  perhaps,  are  not  lawyers.  If 
you  tax  all  mortgages,  money  will  not  be  invested  in  mortgages  until  the  rate 
of  interest  upon  mortgages  has  risen  to  the  point  at  which  the  returns  of  the 
investor  will  be  the  usual  return,  risk  and  convenience  considered.  Inevitably 
that  tax  imposed  upon  the  mortgage  shifts  itself  over  to  the  owner  of  the 
property  which  is  represented  by  the  mortgage.     If  you  tax  the  bonds  of  some 


NATIONAL   CONFERENCE   ON   TAXATTOW:^  27 

corporation,  which  are  merely  a  mortgage  split  up  into  pieces,  you  impose  a 
burden  which  falls  upon  the  borrower  of  the  money — the  corporation  itself.  It 
falls  ultimately  upon  the  owners  of  the  title  deeds  of  the  property,  called  shares 
of  stock.  It  does  not  touch  the  man  who  buys  the  bond  the  following  day.  The 
purchase  price  has  fallen  by  the  amount  of  the  tax,  and  it  is  impossible  to  reach 
the  man  who  buys  bonds  the  day  after  the  tax  has  been  imposed.  That  principle 
applies  to  every  case  of  an  attempt  to  tax  any  piece  of  paper  evidencing  property. 
You  cannot  tax  the  owner  of  that  paper.     Nature  will  not  let  you  do  it. 

A  Member:  Is  it  not  true  that  the  tax  on  mortgages  was  abolished  in 
Baltimore.  Md..  and  that  interest  fell? 

Mr.  Purdy:  I  have  heard  it  did,  and  they  have  since  reimposed  it.  They 
have  imposed  a  tax  of  8  per  cent,  on  the  income  of  the  interest  derived. 

Mr.  Williams:  It  does  not  pay  for  the  collection.  They  had  to  have  a 
special  department  for  the  collection,  and  the  thing  did  not  pay  the  expenses 
of  the  collection  department. 

Mr.  Niles:  But  it  has  the  effect  of  making  the  rate  of  mortgage  interest 
higher  than  the  rate  of  interest  on  good  bonds.    That  effect  it  has  now. 

Mr.  Bates,  of  Ohio:  Mr.  Chairman,  is  this  argument  really  pertinent?  Is 
it  not  a  fact  that  in  the  taxation  of  all  classes  of  property  on  that  theory  the 
capitalist  is  the  one  who  escapes?  In  the  taxation  of  the  large  building — the 
sky-scraper — is  not  the  tax  really  paid  by  the  tenant?  Is  not  the  tax  on  the 
mortgage  paid  by  the  borrower?  Is  not  the  tax  upon  the  stock  in  goods  of 
the  merchant  paid  by  the  purchaser  in  the  price?  There  is  a  question  which 
comes  before  us :  How  to  reach  the  capitalist.  Bank  stocks  are  taxed.  They 
are  not  taxed  in  the  national  banks,  we  all  know.  There  is  no  direct  tax  on 
the  national  bank.  It  is  paid  by  the  stockholder.  Should  we  not  pursue  legitimate 
inquiry  to  some  method  by  wMch  the  real  capital  invested  should  be  taxed,  and 
not  the  borrower  and  the  tenant  and  the  purchaser  in  every  case?  I  am 
sorry  to  say  I  have  no  remedy  to  suggest.  It  has  been  said  it  is  a  demagogue 
who  points  out  an  evil  and  a  statesman  who  suggests  a  remedy.  I  wish  I 
were  the  statesman  in  this  case,  but  I  am  not.  I  merely  suggest  this  as  a  line 
of  thought. 

The  Chairman  :  Gentlemen,  we  would  be  very  glad  to  hear  from  any 
gentleman  from  any  State  which  has  solved  the  problem  of  reaching  personal 
property,  or  adopting  a  substitute  for  it. 

Mr.  Williams,  of  West  Virginia:  Mr.  Chairman,  I  would  like  to  ask 
the  gentleman  who  has  just  taken  his  seat,  whether  or  not  the  same  effect  would 
not  result  if  the  tax  were  put  wholly  upon  real  estate,  if  it  would  not  have 
the  effect  to  raise  the  value  of  all  farm  products  and  simply  be  another  illustra- 
tion of  the  principle  that  the  consumer  pays  the  tax  as  the  man  who  uses  the 
tobacco  pays  the  revenue. 

Mr.  Purdy:  I  believe  there  is  a  method  of  taxing  personal  property.  I 
believe  if  mortgages  were  taxed,  perhaps  not  at  the  uniform  rate  of  real  estate, 
but  some  smaller  rate,  one-quarter  of  one-half  of  i  per  cent.,  and  if  bank 
deposits  were  taxed  by  charging  them  to  the  bank  itself,  compelling  the  bank 
to  pay  the  tax,  perhaps  at  not  so  large  a  rate  as  real  estate  is  taxed,  the  result 
would  be  much  more  satisfactory  to  the  taxpayer  and  everybody  concerned.  I 
believe  something  a  little  on  the  line  of  the  gentleman  from  New  York,  that 
there  is  a  proper  solution  if  thought  and  care  were  given  to  it  by  which  personat 
property  might  be  made  to  bear  its  proper  share  of  the  burden  of  taxation. 


28  THE    NATIONAL    CIVIC   FEDERATION. 

Mr.  Williams  :  Mr.  Chairman,  one  of  the  difficulties  about  taxing  personal 
property  is  that  the  property  represented  by  shares  of  stock  is  not  properly  taxed. 
Take  the  property  of  railroads.  I  would  like  to  hear  from  any  State  where  the 
tunnels  of  railway  companies  are  taxed.  You  tax  a  man's  house  and  the  cost 
of  production.  Take  it  in  the  State  of  Maryland;  the  cost  of  railroad  bridges 
in  ^hat  State  is  very  great  as  the  bridges  are  very  extensive  in  character.  I 
believe  they  are  practically  not  taxed  at  all.  Take  the  railroads  of  Maryland 
as  far  as  they  are  not  exempt — and  most  of  them  are  exempt — but  railroads 
that  have  been  constructed  since  the  charte^;  and  I  think  that  through  the 
influence  of  corporations  in  politics  these  railroads  are  taxed  simply  so  much 
a  mile.  That  "so  much  a  mile,"  I  do  not  suppose,  represents  much  more  than 
the  cost  of  the  iron.  The  stock  of  the  Baltimore  &  Ohio  Railroad  is  an  imma- 
terial thing.  It  is  simply  a  chose  in  action.  It  represents  my  interest  in  the 
iron,  in  the  tunnels,  in  the  bridges,  the  rolling  stock  and  the  rights  of  way; 
represents  my  interest  in  all  those  things. 

A  Member:    The  profits? 

Mr.  Williams:  The  profits  are  different.  It  represents  my  interest  in  all 
those  things,  and  there  would  be  no  reason  to  complain  if  my  stock  were  not 
taxed,  if,  as  a  matter  of  fact,  the  tunnels  and  bridges  were  taxed.  If  the  tunnels 
and  bridges  are  taxed,  my  stock  is  taxed.  But  the  tunnels  and  bridges 
and  iron  are  not  taxed.  The  tax  is  on  a  plan  which  is  an  absurdity. 
The  difficulty  is,  as  far  as  personal  property  is  concerned,  choses  in  action, 
the  property  of  the  large  corporations  of  the  United  States  is  not  taxed. 
It  is  taxed  on  a  conventional  plan,  but  not  on  its  actual  cost.  In  Maryland  the 
Baltimore  &  Ohio  comes  before  the  Legislature  and  says  that  it  is  a  mean  thing 
to  tax  them  for  tunneling  under  Baltimore  City,  which  cost  them  twenty-five 
■million  dollars.  The  cheerful,  rural  man  is  appealed  to  by  that  and  other  methods 
and  releases  the  Baltimore  &  Ohio  from  taxation  on  its  twenty-five-million-dollar 
improvement.  Yet,  if  this  man  builds  a  pigsty,  though  the  pig  would  live 
cheaper  if  he  did  not  build  it,  he  is  taxed  on  the  pigsty.  The  people  of  various 
States  recognize  that  the  difficulties  that  these  railroads  have  to  overcome  is  a 
reason  for  imposing  large  taxes  and  not  a  reason  for  releasing  them ;  that,  if  the 
•conduct  of  their  business  requires  a  vast  amount  of  capital,  that  is  no  reason 
vi^hy  their  taxes  should  be  reduced.  As  far  as  taxation  of  evidences  of  corporate 
enterprise  is  concerned,  I  think  it  should  be  proportionate  to  the  cost  of  improve- 
ment. The  cost  of  the  Baltimore  &  Ohio  Railroad  in  Maryland,  I  suppose,  could 
"hardly  be  guessed  at.  Take  street  railroads,  and  the  cost  of  an  electrical  system 
is  a  certain  amount  per  mile.  It  i«  taxed  at  so  much  a  mile — on  an  average,  five 
thousand  dollars,  which  is  supposed  to  represent  the  cost  of  the  railroad.  Every- 
body knows  that  in  a  large  city  when  you  commence  to  build  an  extensive 
street  railroad  system,  it  is  necessary  to  pay  out  from  fifty  to  two  hundred 
thousand  dollars  a  mile  outside  of  the  franchise  and  other  matters.  The  right 
way  to  get  at  it  is  to  see  that  the  large  corporate  businesses  are  taxed  according 
to  their  cost. 

Mr.  Hines,  of  Louisville,  Ky. :  Mr.  Chairman,  I  just  desire  to  say  that  I 
think  the  railroad  paradise  Mr.  Williams  has  spoken  of  does  not  extend  beyond 
the  State  of  Maryland.  It  does  not  exist  in  Kentucky.  There  the  railroads 
are  taxed  on  more  than  the  cost  of  producing  their  property. 

Mr.  Grosser,  of  Kansas:  Mr.  Chairman,  no  doubt  there  is  a  good  deal  of 
perjury  committed  in  reference  to  the  valuation  of  personal  property;  is  not 
that  also  true  of  real  estate?    I  believe  I  am  safe  in  saying  that  in  Kansas  there 


NATIONAL   CONFERENCE   ON    TAXATION.  29 

are  a  great  many  inequalities  in  the  taxation  of  real  estate  in  the  same  town- 
ships and  in  different  counties.  As  far  as  railroads  are  concerned  in  Kansas, 
they  are  assessed  by  a  Board  of  Assessors  composed  of  State  officers,  and  the 
railroad  valuation  is  greater  than  the  rest  of  the  personal  property  of  the  State. 
Railroads  pay  their  share  of  taxes  and  we  get  at  them  very  simply  and  very 
easily.  It  costs  comparatively  Httle  to  levy  and  collect  the  tax.  The  plan  is 
simple,  and  it  seems  to  me  it  is  feasible  and  ought  to  be  practicable  in  any 
State. 

Mr.  Howard,  of  Indiana :  Mr.  Chairman,  it  seems  to  me  I  have  noticed  an 
effort  to  consider  the  question  of  taxation  from  some  scientific  or  exact  and 
mathematical  point  of  view.  I  do  not  understand  that  taxation  is  anything 
more  than  a  practical  question.  The  fact  that  we  have  difficulty  in  reaching 
the  personal  tax  in  any  particular  case  is  no  argument  against  it.  As  the  gentle- 
man from  Kansas  says,  that  is  true  of  all  kinds  of  taxation.  Another  observa- 
tion made  here  seems  to  be  beside  the  question  as  to  what  property  has  cost — 
as  to  what  the  property  of  railroads  has  cost.  Sometimes  the  taxes  are  made 
too  low  on  that  ground.  In  a  tunnel  case  it  might  be  made  too  high  on  that 
ground.  The  question  is,  rather,  what  the  property  is  worth,  what  the  property 
is,  what  income  comes  from  it.  This  question  seems  to  me  entirely  a  practical 
one  and  that  we  should  approach  it  from  practical  points  of  view  in  determina- 
tion of  values.  One  thing  I  think  has  been  lost  sight  of  to  some  extent — we 
seem  to  forget  our  constitutions.  The  constitutions  of  different  States,  as  well 
as  that  of  Indiana,  require  that  all  property  should  be  t^xed.  In  Indiana  we 
cannot  avoid  that.  We  must  tax  all  property  the  best  we  can.  There  it  becomes 
entirely  a  practical  question.  There  are  certain  kinds  of  property,  the  property 
of  railroad,  telegraph,  telephone  and  express  companies — property  of  that  kind 
extending  from  one  State  to  another.  In  Indiana  we  think  such  property  should 
be  taxed  by  a  State  Board,  and  we  do  not  look  at  the  question  of  the  cost  of 
this  property,  simply,  because  a  poor-paying  railroad  may  cost  in  the  beginning 
as  much  as  a  good-paying  railroad.  We  look  at  what  the  property  is  worth. 
And  while  we  do  appeal  to  the  companies  in  the  first  place  to  send  in  a  list 
of  their  property,  their  bonds  and  indebtedness,  and  their  evidences  of  property, 
our  State  Boards  are  not  bound  by  such  returns  in  determining  what  the 
property  is  worth,  also  basing  their  determination  upon  the  bonds  of  the  company 
and  the  selling  price  of  the  stock,  and  in  that  way  making  the  companies  them- 
selves the  actual  judges  of  their  property  by  the  best  test  possible,  namely, 
what  it  would  bring  in  the  market.  I  have  noticed,  it  seems  to  me,  in  the  papers, 
generally,  that  this  question  has  been  approached  also  from  the  scientific  point 
of  view.  It  is  not  a  scientific  question.  We  cannot,  value  property  on  any 
basis  except  by  the  best  judgment  of  men.  In  Indiana  we  have  a  method  by 
which  that  can  be  done,  and  it  strikes  me  that  a  good  deal  of  the  difficulty 
suggested  here  has  been  removed  in  our  State. 

Mr.  Curtis  :  Mr.  Chairman,  It  seems  to  me  that  in  this  discussion,  and  as 
to  those  who  insist  that  we  must  continue  the  attempt  to  tax  personal  property, 
that  they  are  persisting  in  what  the  whole  American  nation  have  persisted  in  for  a 
hundred  years,  and  which  I  will  call  by  no  better  name  than  the  great  American 
folly  of  trying  to  tax  everything  in  sight  and  also  everything  out  of  sight.  Pro- 
fessor Seligman  has  sounded  the  keynote  of  the  matter  when  he  insists — I  say  that 
it  is  a  scientific  question — that  taxation  must  be  laid,  not  so  much  with  reference 
to  what  may  be  taxed,  but  with  reference  to  where  the  burden  will  ultimately 
rest.     If  we  will   stop  for  a  moment  to  consider,   we  know   that   nine-tenths. 


30  THE   NATIONAL   CIVIC    FEDERATION. 

speaking  roundly,  of  the  taxes  imposed  by  the  general  property  method,  do  not 
rest  ultimately  where  they  are  placed  in  the  first  instance.  If  we  will  bear 
that  in  mind,  we  will  get  a  long  way  on  the  road  to  reform.  Someone  writing 
within  a  few  years  has  said  that  in  order  t6  accomplish  any  considerable  reforms 
in  taxation  we  must  amend  the  Constitution  of  the  United  States,  the  Consti- 
tutions of  the  several  States,  the  constitution  of  human  nature,  and  the  constitu- 
tion of  things.  We  may  amend  the  Constitutions  of  the  several  States,  but 
we  cannot  amend  the  constitution  of  human  nature  or  the  constitution  of 
things.  Until  we  make  the  two  last  classes  of  amendments,  we  never  will 
successfully  tax  personal  property. 

Mr.  Hall,  of  Missouri:  Mr.  Chairman,  the  remarks  of  the  last  gentleman 
are  a  little  too  scientific  for  practical  purposes.  If  it  is  true  that  the  taxes  of 
^ hoses  in  action  fall  upon  another  than  the  owner,  why  is  it  so  many  dodge 
the  listing  of  the  choses  in  action  when  called  upon?  That  very  fact  proves 
that  the  party  who  owns  the  choses  in  action  pays  the  tax.  You  may,  by  a 
scientific  reasoning  bring  it  out  that  the  other  property — the  borrower,  for 
instance — finally  pays  a  higher  rate  than  he  would  if  the  loaner  did  not  have  to 
pay  the  tax;  nevertheless,  the  man  who  holds  or  owns  the  chose  in  action 
is  the  one  who  pays  on  it.  Now,  the  principle  of  taxation  is  based  upon  the 
right  or  the  protection  offered  to  the  party.  An  owner  of  a  note  that  is 
good  demands  as  much  protection  as  an  owner  of  a  lot  or  of  a  horse.  He 
ought  to  be  required  to  bear  his  proportion  of  the  burden.  '  The  question  of 
getting  the  facts  in  the  case  could  be  arrived  at,  it  seems  to  me,  by  requiring 
the  party  who  owns  the  chose  in  action  to  make  a  list  of  his  choses  in  actions, 
a  list  of  all  his  notes  and  bonds  and  his  horses  and  cattle,  and  let  notes  and 
bonds  be  taxed,  as  horses  and  cattle.  In  order  to  carry  that  into  effect,  it 
need  not  be  required  that  he  should  swear  to  it,  but  make  it  a  law  that  it 
should  be  a  good  legal  defense  to  any  note  or  the  payment  of  any  bond. 
Let  the  burden  be  laid  upon  the  defendant;  the  defendant  may  show  in  a 
court  of  law  that  the  note  or  bond  was  not  listed  for  taxation  by  the  owner. 
You  will  find  that  it  will  not  be  necessary  to  make  him  swear  to  it.  He  is 
compelled  to  give  in  his  property  because  he  is  afraid  his  neighbor  will  hold 
him  to  the  law.  It  seems  to  me  that  it  is  a  practical  proposition;  if  you 
make  men  give  in  a  list  of  the  property  they  have,  including  immaterial  as 
well  as  material  property,  you  comply  then  with  the  demands  of  the  system 
and  the  justice  of  the  system,  and  make  each  one  bear  his  proper  proportion 
of  the  burden. 

Mr.  Heermance,  of  New  York:  Mr.  Chairman,  it  seems  to  me  a  good 
deal  of  the  difference  of  opinion  which  seems  to  exist  here  is  only  apparent 
and,  perhaps,  from  lack  of  defining  terms.  I  doubt  very  much  whether  there 
are  many  delegates  in  this  Convention  who  would  really  suggest,  or  propose, 
at  any  rate,  as  a  practical  scheme  at  present,  whatever  theories  they  may 
have  in  regard  to  what  may  be  accomplished  some  time  in  the  future,  the 
absolute  abolition  of  a  personal  property  tax.  For  instance,  the  gentleman 
who  spoke  at  my  right  a  few  moments  ago  spoke  as  though  the  words  of 
Professor  Seligman  might  be  interpreted  as  favoring  such  an  abolition.  Unless 
I  have  misunderstood  what  the  professor  says,  I  certainly  do  not  believe  he 
favors  anything  of  the  kind.  Now,  the  question  is  as  to  the  methods  of  getting 
at  it.  I  assume  that  those  who  speak  of  doing  away  with  the  personal  property 
tax  have  reference  more  particularly  to  doing  away  with  it  as  a  part  of  the 
general   property   tax    rate   in   the   way   it   is   usually   laid   now,    whether  it   is 


.NATIONAL   CONFERENCE   ON   TAXATION. 


31 


by  a  listing  system  or  whether  it  is  within  the  purview  of  the  local  assessor  to 
get  at  it  as  best  he  may,  usually  by  guesswork,  and  to  reach  it,  as  was  suggested 
by  Senator  Garfield,  by  getting  at  the  fountain-head  so  that  it  will  be  impossible 
for  personal  property  to  become  exempt.  There  is  a  certain  kind  of  income- 
producing  property,  which  it  seems  to  be  difficult  to  reach.  Suppose,  here 
in  the  City  of  Buffalo,  for  the  purposes  of  illustration,  you  have  some  railroad 
or  street  railroad  which  is  put  in  at  the  cost  of  the  actual  plant  at  five  million 
dollars.  It  goes  to  work  and  in  a  few  years  the  stock  is  five  million  dollars, 
and  it  pays  five  per  cent  on  that  amount.  In  a  few  years  more  it  pays  five 
per  cent,  on  ten  million  dollars,  and  the  stock  would  go  up  to  two  hundred  per 
cent.  The  additional  valuation  very  largely  escapes  taxation,  and  some  method 
of  reaching  that  additional  value  is  certainly  desirable.  If  I  may  be  permitted, 
I  want  to  say  something  in  reference  to  the  question  that  has  called  forth 
this  later  discussion  in  regard  to  the  condition  of  the  farmer.  It  illustrates 
how  very  widely  conditions  differ  in  the  different  States  of  this  country.  The 
gentleman  from  Indiana  and  some  of  the  other  Western  representatives  have 
shown  that  the  farmers  in  those  sections  were  very  prosperous,  that  they 
owned  four-fifths,  or  held  that  proportion  of  the  bank  stock  and  the  mort- 
gages. They  want  to  take  into  consideration  that  the  wealth  and  prosperity 
of  the  Western  farmer  is  at  the  expense  of  the  agricultural  interests  of  this  part 
of  the  country.  It  would  not  do  for  the  gentlemen  who  come  from  the  West, 
where  such  a  prosperous  agricultural  condition  prevails,  to  go  away  without  hav- 
ing some  idea  of  the  conditions  in  New  York.  There  are  gentlemen  from  other 
States  who  will  enlighten  them  as  to  the  conditions  prevailing  in  those  localities; 
but  here,  owing  to  the  very  fact  of  the  Western  competition,  with  their  increased 
facilities  for  getting  their  products  into  the  market,  farming  lands  in  New 
York  and  in  the  Eastern  States  generally,  have  depreciated  in  value  from 
fifty  to  seventy-five  per  cent.  This  seems  like  a  pretty  wild  statement;  never- 
theless it  is  a  fact.  The  assessments  have  been  largely  kept  up  owing  to 
the  habit  Assessors  have  fallen  into  of  following  right  along.  To  be  sure, 
there  has  been  some  little  decrease,  but  it  has  been  nothing  whatever  in  propor- 
tion to  the  decrease  in  the  selling  value  of  farm  property  which  has  grown 
out,  not  so  much  from  the  decrease  in  the  productiveness  of  the  farm,  but 
from  the  competition  of  the  Great  West.  So  that  here,  in  this  State  to-day, 
where  there  was  at  one  time  a  demand  for  a  farm — and  if  a  farm  were  adver- 
tised for  auction  there  would  be,  not  only  the  neighbors  of  the  man  and  others 
in  the  township,  but  from  without  the  township,  capitalists  would  come  with 
the  expectation  that  they  might  have  an  opportunity  to  make  a  good  invest- 
ment in  real  estate;  and  if  it  were  sold  at  a  reasonable  price,  they  would 
be  able  to  make  a  good  investment.  That  is  the  state  of  affairs  that  formerly 
existed,  but  to-day,  ninety-nine  times  out  of  a  hundred,  the  mortgagee  gets 
the  property  sold  on  foreclosure,  and  nine  times  out  of  ten  he  gets  it  for 
less  than  the  assessment;  and  nine  times  out  of  ten  he  might  advertise  the 
foreclosure  sale  in  all  the  papers  of  the  county  and  have  handbills  distributed 
all  about,  and  when  you  came  to  the  day  of  the  sale  the  only  ones  that  would 
be  there  would  be  the  mortgagee  and  his  attorney — and  possibly  one  or  two 
owners  of  adjoining  property,  if  they  were  not  too  busy  with  their  crops — 
-would  walk  around  as  a  matter  of  curiosity  to  see  what  figure  the  farm  goes 
at.  Then,  when  the  mortgagee  buys  it,  he  does  not  know  what  to  do  with  it. 
I  found,  in  going  through  this  State,  a  man  who  had  a  mortgage  on  a  farm 
-and  had  to  sell  it,  and  the  property  was  bought  in.     It  was  a  farm  of  one 


32 


THE   NATIONAL   CIVIC   FEDERATION. 


hundred  eighty  acres  of  land,  with  good  buildings.  When  he  began  to 
look  around  to  find  some  one  to  hire  that  farm  he  found  the  class  of  people 
who  worked  farms  and  owned  farming  implements  had  ceased  to  exist.  They 
had  sold  their  implements  and  gone  to  work  for  other  farmers  or  for  the 
railroads  or  elsewhere.  And  it  resulted,  to  make  a  long  story  short,  in  the 
mortgagee  going  to  a  young  man  whom  he  knew,  and  sayiqg  to  him  that 
if  he  would  take  the  farm  and  work  it  and  keep  the  fences  and  buildings 
from  falHng  down,  and  the  weeds  and  bushes  from  growing  up,  till  he  could 
sell  it,  he  would  buy  a  pair  of  horses  and  all  the  implements  necessary  to 
run  it,  and  pay  the  taxes  and  furnish  the  young  man  the  seed,  and  he  could 
have  all  he  made  out  of  it.  A  man  who  gets  a  farm  on  his  hands  in  this 
State,  and  is  not  a  practical  farmer,  ready  to  get  up  at  four  o'clock  in  the 
morning  and  work  eighteen  hours  a  day,  will  find  that  that  is  about  the  result 
of  his  ownership. 

The  Chairman  :  Why  are  not  your  valuations  reduced  under  those  circum- 
stances ? 

Mr.  Heermance:  Well  they  have  been  reduced,  but  the  Assessor  has  not 
kept  pace  with  the  depreciation.  For  instance,  I  may  mention  this  thing,  though 
It  may  seem  petty,  but  when  you  come  into  the  rural  community  the  farmers, 
of  course,  are  always  considering  small  matters.  A  few  hundred  dollars  is 
of  as  much  importance  as  tens  of  thousands  to  men  in  the  great  municipalities. 
In  the  rural  communities  they  deal  with  small  figures.  Only  a  few  days  ago 
I  knew  a  piece  of  property  belonging  to  a  poor  man — a  farm  of  thirty-four  acres 
of  land — had  to  be  sold  to  pay  the  debts.  He  was  in  the  asylum  and  had  a 
few  hundred  dollars  of  debts.  I  do  not  know  what  he  paid  for  the  property, 
but  it  was  assessed  for  five  hundred  dollars,  and  was  advertised  in  all  the 
local  papers,  and  handbills  stricken  off,  and  everything  possible  done  to  obtain 
a  good  price;  and  it  sold  for  three  hundred  fifty  dollars.  I  can  cite  a  large 
number  of  similar  cases. 

The  Chairman  :  Gentlemen,  if  there  is  any  State  that  has  put  in  force 
any  such  measure  as  suggested  by  the  gentleman  from  Missouri,  we  should 
be  very  glad  to  hear  of  its  success,  on  reassembHng.  Our  legislature  in 
Missouri  passed  a  bill  a  few  years  ago,  not  only  making  a  failure  to  list  for 
taxes  an  offense,  but  requiring  as  a  condition  of  negotiability  of  any  note  or 
bond,  whether  secured  by  mortgage  or  not,  that  it  be  stamped  by  the  Assessor 
and  listed  for  taxation.  The  bill  was  vetoed  by  the  Governor,  on  the  ground 
that  it  would  have  a  tendency  to  drive  capital  from  the  State  and  be  disastrous 
to  the  farmer  and  all  other  classes  of  people. 

Mr.  Mather,  of  Illinois:  Mr.  Chairman,  I  suggest  that  some  arrangement 
or  provision  ought  to  be  made  for  the  pubHcation  of  the  papers  and  the  discus- 
sions of  this  conference.  If  no  other  provision  has  been  made,  I  beg  to  suggest, 
and  make  a  motion  to  the  effect,  that  a  committee  of  five  be  appointed  by  the 
Chairman,  on  publication. 

The  motion  was  duly  seconded. 

The  Chairman:  The  Chair -understand's  that  arrangements  have-  been- 
made  for  a  stenographic  report  of  these  proceedings,  and  that  such  a  report  is 
being  made. 

The  Chairman  put  the  question  on  the  motion,  and  the  same  was  duly 
carried. 

Mr.  Seligman  :  Mr.  Chairman,  I  have  a  motion  which  I  wish  to  offer. 
I  think  that  many  of  us  who  have  come  here  to  this  gathering,  have  come  not 


NATIONAL   CONFERENCE   ON   TAXATION. 


33 


alone  with  the  expectation  of  learning  a  great  deal  from  one  another,  but  also 
with  the  hope  that  there  might  be  some  definite  outcome  of  this  Conference.  I 
therefore  suggest  that  the  Chairman  appoint  a  committee  of  five,  of  which 
he  should  be  one,  to  bring  in  a  report  at  some  future  meeting  of  this  Confer- 
ence as  to  the  advisability  of  forming  a  permanent  organization,  and  to  report 
to  the  Conference  as  to  what  kind  of  a  permanent  organization,  if  any,  is 
deemed  desirable. 

Mr.  Heermance:  Mr.  Chairman,  it  seems  to  me  that  is  a  matter  of  a 
great  deal  of  importance.  This  Convention  was  called  for  the  23d  and  24th, 
although  it  is  now  the  intention  to  carry  it  along  over  Saturday.  There  are 
proably  some  who  will  be  called  away  by  to-morrow  night,  as  I  myself 
shall  be,  and  I  know  of  several  others  who  came  here  expecting  a  two  days' 
session.  I  would  therefore  suggest  that,  if  such  a  committee  is  appointed, 
it  should  report  as  soon  as  possible  and  an  hour  be  fixed  for  taking  up  this 
matter  as  a  special  order.  It  seems  to. me  that  the  practical  outcome  of  such 
a  gathering  as  this  is  to  be  largely  found  in  just  such  an  organization,  where 
there  would  be  permanent  means  of  bringing  together  all  the  data  the  different 
States  might  provide  in  the  hands  of  some  general  secretary,  so  that  not  only 
the  members  of  such  an  organization  after  it  is  formed,  but  the  tax  officials  of 
every  State  in  the  country  ultimately,  may  be  able  to  have  access  to  them 
at  once,  and  that  a  new  man  upon  his  inauguration  into  office  may  have  the 
resuhs  of  the  work  that  has  been  done  before,  and  not  have  to  start  in  as  an 
original  investigator  and  go  over  all  the  ground  which  many  other  tax  officials 
have  gone  over. 

The  Chairman  :  The  question  before  the  house  is  the  appointment  of  a 
committee  of  five  to  report  to  an  adjourned  meeting  to-morrow  afternoon  upon 
the  plan  of  permanent  organization. 

The  Chairman  put  the  question  on  the  adoption  of  the  motion,  and  the 
same  was  adopted. 

On  motion  of  Senator  Sloan,  the  Conference  took  a  recess  until  half-past 
two  o'clock. 

PROCEEDINGS   OF   THE  AFTERNOON   SESSION,   MAY  23,    1901. 

Chairman  Judson  called  the  Conference  to  order  at  half-past  two  o'clock. 

The  Chairman  :  Gentlemen,  a  committee  of  five  was  authorized  this  morn- 
ing to  be  appointed  on  the  matter  of  publication.  The  Chair  appoints  as  such 
committee  ex-Secretary  Fairchild,  of  New  York;  Mr.  Mather,  of  Illinois;  Mr. 
Russell,  of  Delaware;  ex-Senator  Davis,  of  West  Virginia,  and  Mr.  Little,  of 
Massachusetts. 

In  the  matter  of  permanent  organization,  the  Chair  has  named  upon  the 
committee  as  the  four  gentlemen  he  was  authorized  to  designate,  Mr.  Seligman, 
of  New  York ;  Mr,  Garfield,  of  Ohio ;  Mr.  Gilson,  of  Wisconsin,  and  Mr.  Purdy, 
of  New  York. 

Gentlemen,  the  program  outlined  for  this  afternoon  is  the  general  discus- 
sion of  the  taxation  of  corporations,  on  which  subject  we  have  papers  from 
Mr.  Howe,  of  Cleveland,  on  the  "Federal  Restraints  on  the  Taxation  of 
Corporations";  a  paper  from  ex-Secretary  Fairchild,  of  New  York,  who  unfor- 
tunately is  detained  and  unable  to  be  present  himself  but  whose  paper  will 
be  read,  on  the  subject  of  "Banks  and  Trust  Companies,"  and  also  a  paper 
from  Mr.  Allen  Ripley  Foote,  of  Chicago. 


34  THE   N^ATIONAL   CIVIC   FEDERATION. 

Mr.  Davis:  Mr.  Chairman,  while  I  am  ready  to  serve,  and  will  be  glad 
to  help  the  Commission  in  any  way  I  can,  yet  I  am  so  far  away  as  to  be 
unable  to  serve  on  the  committee  upon  which  you  have  just  done  me  the  honor 
to  appoint  me. 

The  Chairman:  I  think  there  will  be  little  work  after  the  adjournment 
of  the  Conference,  and  perhaps  in  that  view  Senator  Davis  will  be  able  to 
serve. 

Mr.  Davis  :  I  think,  however,  it  will  be  better  to  have  some  one  else 
named  in  my  place. 

The  Chairman  :   That  position  will,  then,  be  filled  later. 

I  now  have  the  pleasure  of  introducing  to  you,  gentlemen,  Mr.  Frederic  C. 
Howe,  of  the  Bar  of  Cleveland,  Ohio,  who  will  read  a  paper  on  "Federal 
Restraints  on  the  Taxation  of  Pubhc  Service  Corporations." 

I  will  ask  Attorney-General  Godard  of  Kansas  to  take  the  Chair. 

Mr.  Godard  took  the  Chair. 


FEDERAL  RESTRAINTS  ON  THE  TAXATION  OF  PUBLIC  SERVICE 

CORPORATIONS. 


BY  FREDERIC  C.   HOWE. 


It  is  a  significant  thing  that  the  forces  which  animated  the  calling  of  the 
Annapolis  Conference  by  Virginia  in  1786  should  remain  the  most  powerful  forces 
for  union  in  the  United  States  at  the  present  day.  It  was  for  the  purpose  of 
securing  united  action  for  the  establishment  of  a  line  of  intercolonial  communica- 
tion and  the  freeing  of  such  communication  from  regulation  and  restraint  by  the 
several  colonies  that  led  the  colonies  to  seek  a  more  perfect  union.  That  effort 
resulted  in  the  establishment  of  the  Federal  Constitution.  The  old  confederation 
had  fallen  as  much  by  virtue  of  the  harassing  exactions  on  intercolonial  com- 
merce as  by  the  financial  and  political  impotency  of  the  Continental  Congress. 

And  it  is  a  fact  of  no  little  political  interest  that  the  controversy  between  the 
different  colonies  over  the  regulation  and  taxation  of  intercolonial  commerce 
should  remain  one  of  the  most  persistent  political  and  legal  questions  of  Ameri- 
can history.  It  persists  in  certain  classes  of  laws  aimed  at  the  sale  of  such  articles 
of  commerce  as  intoxicating  liquors,  oleomargarine  and  the  like,  as  well  as  in  the 
taxation  and  regulation  of  the  instruments  of  commerce  as  railroads  and  trans- 
mission companies.  But  the  ground  of  the  controversy  has  shifted,  for  whereas 
the  struggle  theretofore  had  been  between  the  colonies,  jealous  of  their  individual 
integrity  and  privileges,  the  subsequent  issues  have  been  between  the  States 
and  the  National  Government,  and  have  been  wrought  out  in  the  courts  rather 
than  in  legislative  halls. 

It  is  only  in  the  matter  of  taxation,  however,  that  the  constitutional  evolu- 
tion which  has  taken  place  about  that  section  of  the  Consitution  which  provides 
that  "the  Congress  shall  have  power  to  regulate  commerce  among  the  several 
States,"  interests  us  to-day,  although  the  early  controversies  of  the  courts  over 
the  question  of  whether  this  power  is  exclusive  in  Congress  or  concurrent  with- 
the  States  is  most  alluring.  The  latter  question,  however,  is  but  part  of  a 
greater  political  issue  which  found  its  termination  in  the  Civil  War,  although 


NATIONAL   CONFERENCE   ON    TAXATION.  35 

in  a  modified  form  it  exists  to  this  day  in  the  attempts  of  the  States  to  regulate 
interstate  commerce  in  intoxicating  liquors,  oleomargerine  and  the  like. 

In  recent  j'ears  the  struggle  over  the  regulation  of  interstate  commerce  has 
been  transferred  to  the  domain  of  finance  and  taxation,  and  the  aid  of  the 
Federal  Judiciary  has  been  called  upon  with  recurring  frequency  for  the  purpose 
of  staying  the  hands  of  State  Legislatures  in  their  efforts  to  bring  the  taxation 
of  corporations  more  into  harmony  with  modern  industrial  conditions. 

While  the  question  has  already  passed  from  the  domain  of  legal  discussion 
into  that  of  established  jurisprudence,  it  is  doubtful  if  the  question  arose  de  novo 
whether  the  courts  would  again  hold  that  any  fair  and  legitimate  exercise  of 
sovereignty  in  the  form  of  taxation,  was  per  se  such  "regulation"  as  is  contem- 
plated by  the  Federal  Constitution  under  the  commerce  clause.  The  obiter  of 
Marshall  that  "the  power  to  tax  involves  the  power  to  destroy"  has  ever  proven 
a  bogey  in  the  eyes  of  the  courts,  and  scores  of  enactments  have  been  sacrificed 
at  that  altar. 

While  I  do  not  mean  to  question  but  that  the  power  of  taxation  may  be 
used  for  the  purpose  of  regulation,  as  in  the  case  of  liquor  license  laws  and 
similar  enactments,  it  is  unwarranted  to  assume  that  every  tax  upon  commerce 
is  of  necessity  a  regulation,  for  a  tax  only  assumes  that  form  when  certain  ele- 
ments coincide  which  prejudice  the  class  or  property  aimed  at,  or  when  the  law 
has  a  social  or  sumptuary  object  in  view.  In  some  recent  cases,  the  Supreme 
Court  has  held  that  it  would  take  into  consideration  any  injustice,  double  taxation 
or  discrimination  on  the  part  of  the  States  which  involved  interstate  properties, 
and  had  this  attitude  of  mind  on  the  part  of  the  court  obtained  heretofore,  much 
confusion  would  have  been  avoided. 

It  is  my  purpose  to  consider  the  limitations  which  the  Federal  Courts  have 
imposed  upon  the  power  of  the  State  to  tax  railroads  and  transmission  com- 
panies engaged  in  interstate  traffic,  and,  if  possible,  to  deduce  from  their  decisions 
the  powers  of  the  individual  commonwealths  in  this  respect. 

The  controversy  which  has  of  late  occupied  the  attention  of  the  courts  to 
so  great  an  extent  over  the  taxation  of  transportation  companies  on  some  other 
basis  than  the  general  property  tax  first  arose  nearly  a  generation  ago.  It  grew 
out  of  an  attempt  on  the  part  of  the  State  of  Pennsylvania  to  tax  the  tonnage 
carried  by  railroads,  steamboats  and  canals  at  a  specific  rate  of  from  two  to  five 
cents  a  ton  for  freight  carried.  The  tax  was  made  applicable  to  all  traffic  carried 
over,  through  and  into  the  State,  as  if  the  whole  of  the  respective  railroad  lines 
were  in  Pennsylvania.  The  case  was  most  exhaustively  argued  and  the  tax  held 
a  regulation  of  interstate  commerce,  and  hence  repugnant  to  the  Constitution  of 
the  United  States.^ 

Some  time  prior  to  this  it  had  been  questioned  by  the  Supreme  Court  whether 
the  transportation  of  passengers  was  commerce,*  but  later  decisions'  have  settled 
that  a  tax  upon  passengers  is  a  regulation  of  commerce,  and  void. 

Of  a  somewhat  similar  character  to  the  taxes  upon  tonnage  are  those  levied 
upon  telegraph  messages,  as  such,  transmitted  beyond  the  State  line,*  or  on  the 
receiving  and  landing  of  express  or  freight  in  one  State  from  another  State.' 


^  State  Freight  Tax  Case.  15  Wall.  232. 

*  Crandall  vs.  Nevada,  6  Wall.  35. 

*  Hall  vs.  DeCuir,  95  U.  S.  485. 

*  Telegraph  Co.  vs.  Te.xas.  105  U.  S.  460. 
'Ferry  Co.  z's.  Pennsylvania,  114  U.  S.  196. 


36  THE   NATIONAL   CIVIC   FEDERATION. 

Such  duties  have  been  held  to  be  restraints  upon  interstate  commerce,  and  hence 
illegal. 

The  principles  underlying  these  decisions  are  uniform  and  easily  recon- 
cilable. 

The  same  harmony  does  not  exist,  however,  in  the  attitude  of  the  Supreme 
Court  upon  taxes  levied  by  the  States  upon  gross  receipts,  or  taxes  imposed 
by  way  of  licenses.  In  a  number  of  Southern  States  it  has  been  attempted  to 
tax  transmission  companies  by  the  latter  method.  Both  States  and  cities  have 
imposed  license  taxes,  which  have  been  resisted  by  the  corporations.  These 
licenses  have  been  imposed  either  at  an  arbitrary  rate  or  proportioned  to  the 
amount  of  business  transacted.  On  a  number  of  occasions  these  enactments  have 
been  declared  invalid  on  the  ground  that  they  affected  the  entire  business  of  the 
company,  interstate  as  well  as  local,  and  hence  regulated  comm^erce.*  The  same 
Court,  however,  has  permitted  license  taxes  to  stand  where  the  act  itself  declared 
that  they  were  levied  upon  business  done  exclusively  within  the  city  or  State/ 
It  thus  appears  that  the  fate  of  such  taxes  at  the  hands  of  the  Court  has  depended 
not  so  much  on  their  effect  and  purpose  as  upon  the  form  in  which  they  are 
drawn. 

A  similar  lack  of  harmony  exists  in  the  decisions  of  the  Federal  Courts  upon 
taxes  imposed  upon  the  gross  receipts.  This  is  the  most  prevalent  form  of  taxa- 
tion in  vogue  in  the  States,  with  the  exception  of  the  general  property  tax.  It  is 
simple,  easily  assessed  and  supplements  local  rates.  The  decisions  of  the  courts 
upon  this  tax  are  reconcilable  only  upon  legal  and  technical  grounds. 

In  the  early  seventies,  the  State  of  Pennsylvania,  which  has  been  prolific  of 
tax  experiments,  attempted  to  tax  railroads  on  their  gross  receipts,  including  the 
receipts  made  up  from  interstate  traffic.  The  Court  held  that  this  was  not  a 
regulation  of  interstate  commerce,  and  established  a  principle  which  has  been  far- 
reaching  in  its  consequences.  The  decision  was  explained  on  the  ground  that, 
under  the  terms  of  this  statute,  the  receipts  had  lost  their  character  as  receipts 
and  had  become  merged  into  the  company's  property  before  the  tax  was  levied. 
It  thus  became  a  tax  on  property,  and  not  a  tax  on  commerce.  Moreover,  as  the 
corporation  was  a  Pennsylvania  one,  it  was  held  that  the  tax  might  be  viewed 
as  levied  upon  the  franchise  created  by  the  State  taxing  it,  and  that  there  was  no 
more  reason  why  such  a  franchise  should  not  be  valued  by  the  gross  receipts  or 
■earnings  of  the  road  as  by  any  other  method.*  And  the  same  principle  has  been 
sustained  when  applied  to  a  tax  upon  the  gross  receipts  of  a  foreign  railroad 
corporation,  where  the  law  was  declared  to  be  an  excise  tax  for  the  privilege  of 
exercising  its  franchise  within  the  State.  In  this  latter  case,  the  amount  of  the 
receipts  to  be  taxed  was  determined  by  the  proportion  of  the  mileage  within  the 
State  to  the  total  mileage  of  the  road.  Four  judges,  however,  dissented  to  the 
majority  opinion." 

And  it  has  been  repeatedly  held  that  a  State  may  impose  conditions  upon 
foreign  manufacturing  corporations,  and  may  make  the  privilege  of  doing 
business  in  the  State  dependent  on  the  payment  of  a  specific  license  tax.  or  propor- 
tioned to  the  amount  of  capital  used  within  the  State,  as  a  tax  on  its  corporate 


*LeLoup  vs.  Mobile,  127  U.  S.  640.    Moran  vs.  New  Orleans,  112  U.  S.  69. 
'  Postal  Telegraph  Co.  vs.  Charleston,  153  U.  S.  692. 
*  State  Tax  on  Railway  Gross  Receipts.  15  Wall.  284. 

*■  Maine  vs.  Grand  Trunk  Ry,,  142  U.  S.  217.    Railway  Co.  vs.  Pennsylvania, 
158  U.  S.  431. 


NATIONAL   CONFERENCE   ON   TAXATION.  37 

franchise  or  business."  The  reason  for  this  rule  is  that  just  as  a  State  may 
refuse  to  create  a  corporation,  or  may  impose  any  sort  of  a  franchise  tax  upon 
its  creation,  so  it  has  the  absolute  power  of  excluding  a  foreign  corporation 
(saving  those  engaged  in  interstate  or  foreign  business),  from  its  jurisdiction,  or 
of  imposing  such  conditions  upon  that  privilege  as  it  may  deem  expedient. 

But  the  Supreme  Court  has  further  held  that  a  tax  upon  the  gross  receipts 
of  a  New  York  express  company  doing  business  in  Michigan  for  the  carriage 
of  freights  into,  out  of  or  through  the  State,  was  invalid.  The  duty  in  the  latter 
case  was  imposed  upon  the  receipts  specifically  as  receipts,"  and  a  Pennsylvania 
case  in  which  the  tax  in  terms  was  levied  upon  the  gross  receipts  of  business 
between  different  States  was  held  to  be  a  regulation  of  interstate  and  foreign 
commerce,  and  hence  invalid."  All  of  the  taxes  referred  to  above  were  levied 
upon  either  the  evidences  of  property  or  the  privilege  of  transacting  business. 
They  were  in  no  sense  property  taxes. 

In  recent  years  a  tendency  has  been  manifest  to  abandon  such  expedients  as 
licenses,  receipts  and  tonnage  duties,  and  return  to  the  taxation  of  property. 
But  the  return  has  not  been  to  the  general  property  tax  as  such.  It  it  rather  to 
the  adoption  of  new  methods  of  valuation  and  assessment.  Under  the  early  laws, 
railroads  and  transmission  companies  were,  and  still  are  in  many  States,  assessed 
not  as  a  whole,  but  upon  their  various  constituent  parts  as  roadway,  rolling  stock, 
stations,  etc.  The  tendency  of  more  recent  statutes  is  to  assess  the  property  as 
a  unit,  as  a  going  concern,  the  valuation  being  obtained  from  the  stock  and  bonds ; 
or  by  the  capitalization  of  net  earnings  or  by  a  special  board  authorized  to  use 
the  best  evidence  obtainable  as  to  valuation.  In  some  jurisdictions,  this  is  termed 
a  franchise  tax,  in  others  an  excise  tax,  in  others  a  property  or  franchise  tax. 
In  all  cases,  however,  the  effort  is  to  assess  the  franchise  as  property  and  the 
physical  property  as  a  unit.  In  a  number  of  States,  franchises  are  specifically 
enumerated  as  property  to  be  taxed,  and  the  object  of  these  laws  is  to  secure  this 
special  value  which  the  corporation  enjoys  over  and  above  its  physical  property 
for  the  purpose  of  taxation.  How  valuable  a  right  this  may  be  is  seen  in  the 
fact  that  the  valuation  of  local  public  service  corporations  was  increased  $170,- 
000,000  under  the  Ford  Franchise  Law  passed  by  the  New  York  Assembly  in 
May,  1899.  In  Ohio,  the  valuation  of  one  express  company,  based  upon  its  capital 
stock,  was  increased  from  $93,933  to  $1,520,734  under  the  Nichol's  Law,  while 
in  a  Kentucky  case,  the  franchi.se  of  a  bridge  over  the  Ohio  River  used  for  rail- 
way purposes,  was  appraised  at  $865,157  in  addition  to  the  tangible  property.  In 
Kentucky,  under  a  law  similar  to  the  Nichol's  Law  in  Ohio,  the  valuation  of  an 
express  company  was  increased  from  $36,614  on  the  personal  property  to  $1,463,- 
040  upon  its  franchise. 

THE   LEGALITY   OF    THE    FRANCHISE   TAX,    OR    TAXATION    BY    THE    UNIT   RULE. 

Valuation  based  upon  the  franchise  or  unit  rule  has  been  upheld  by  the 
Supreme  Court  of  the  United  States  in  a  large  number  of  cases.  The  question 
was  first  raised  under  an  Illinois  statute  taxing  all  corporations  on  the  value  of 
the  capital  stock,  the  franchise  being  assumed  to  be  the  value  which  existed  over 
and  above  the  assessed  value  of  the  tangible  property.    Under  this  act  the  market 


"New  York  State  vs.  Roberts,  171  U.  S.  658.     Paul  vs.  Virginia,  8  Wall. 
168.     Mining  Co.  vs.  New  York,  143  U.  S.  305. 
"  Fargo  vs.  Michigan,  121  U.  S.  230. 
"  Steamship  Co.  vs.  Pennsylvania,  122  U.  S.  326. 


38  THE   NATIONAL   CIVIC   FEDERATION. 

value  of  the  capital  stock,  plus  the  market  value  of  the  debt  (exclusive  of  floating 
indebtedness),  was  assumed  to  be  the  fair  value  of  the  property.  From  the 
amount  as  thus  ascertained,  all  tangible  property  was  to  be  deducted,  and  the 
amount  remaining  was  to  be  taxed  as  the  fair  cash  value  of  the  franchise.  In 
passing  upon  this  plan,  the  Court  said : 

"This  method  may  not  be  the  wisest  mode  of  doing  complete  justice  in  this 
matter;  but  we  confess  we  have  on  the  whole  seen  no  scheme  which  is  better 
adapted  to  effect  the  purpose,  so  far  as  railroad  corporations  are  concerned,  of 
taxing  at  once  all  their  property,  and  of  making  the  tax  just  and  equal  in  its 
relation  to  other  taxable  property  of  the  State." 

And  the  Court  further  said: 

"It  is,  therefore,  obvious  that  when  you  have  ascertained  the  current  cash 
value  of  the  entire  number  of  shares,  you  have  by  the  action  of  those  who  above 
all  others  can  best  estimate  it,  ascertained  the  true  value  of  the  road,  of  its 
property,  its  capital  stock  and  its  franchise,  for  these  are  all  represented  by  the 
value  of  its  bonded  debt  and  the  shares  of  its  capital  stock." ''' 

Valuations  for  purposes  of  taxation  based  upon  the  capital  stock,  or  upon  the 
stock  and  bonds,  have  since  then  been  repeatedly  sustained  by  the  Federal 
Courts.'* 

The  economic  considerations  underlying  this  tax  are  nowhere  better  stated 
than  in  the  case  of  Adams  Express  Company  I's.  Ohio  State  Auditor,*^  on  a 
petition  for  a  rehearing.  In  this  case,  all  of  the  alleged  inequalities  of  the  law 
were  placed  before  the  Court  and  exhaustively  treated. 

Justice  Brewer  said,  in  affirming  the  previous  action  of  the  Court : 

"Again  and  again  has  this  Court  affirmed  the  proposition  that  no  State  can 
interfere  with  interstate  commerce,  through  the  imposition  of  a  tax,  by  whatever 
name  called,  which  is  in  effect  a  tax  for  the  privilege  of  transacting  such  com- 
merce. And  it  has  as  often  affirmed  that  such  restriction  upon  the  power  of  a 
State  to  interfere  with  interstate  commerce  does  not  in  the  least  degree  abridge 
the  right  of  a  State  to  tax  at  their  full  value  all  the  instrumentalities  used  for 
such  commerce.  .  .  .  The  only  real  substantial  question  is  whether,  properly 
understood  and  administered,  they  (the  tax  laws),  subject  to  the  taxing  power 
of  the  State  property  not  within  its  territorial  limits.  The  burden  of  the  conten- 
tion of  the  express  companies  is  that  they  have  within  the  limits  of  the  State 
certain  tangible  property,  such  as  horses,  wagons,  etc. ;  that  that  tangible  property 
is  their  only  property  within  the  State;  that  it  must  be  valued  as  other  like 
property,  and  upon  such  valuation  alone  can  taxes  be  assessed  and  levied  against 
them. 

"But  this  contention  practically  ignores  the  existence  of  intangible  property, 
or  at  least  denies  its  liability  for  taxation.  In  the  complex  civilization  of  to-day,  a 
large  portion  of  the  wealth  of  the  community  consists  in  intangible  property,  and 
there  is  nothing  in  the  nature  of  things,  or  in  the  limitations  of  the  Federal  Con- 
stitution, which  restrains  a  State  from  taxing  at  its  real  value  such  intangible 
property.  ...  It  matters  not  in  what  this  intangible  property  consists, — 
whether  privileges,  corporate  franchises,  contracts  or  obligations.  It  is  enough 
that  it  is  property,  which,  though  intangible,  exists,  which  has  value,  produces 


"  State  Railroad  Tax  Cases,  92  U.  S.  575. 

"Western  Union  Telegraph  Co.  vs.  Mass.,  125  U.  S.  530.  Pullman  Co. 
vs.  Pennsylvania,  141  U.  S.  18.  Telegraph  Co.  vs.  Taggart,  163  U.  S.  i.  Express 
Co.  vs.  Auditor,  165  U.  S.  194. 

"  166  U.  S.  185. 


NATIONAL   CONFERENCE   ON    TAXATION.  39 

income  and  passes  current  in  the  markets  of  the  world.  To  ignore  this  intangi- 
ble property,  or  to  hold  that  it  is  not  subject  to  taxation  at  its  accepted  value,  is 
to  eliminate  from  the  reach  of  the  taxmg  power  a  large  portion  of  the  wealth  of 
the  country.  Now,  whenever  separate  articles  of  tangible  property  are  joined 
together,  not  simply  by  a  unity  of  ownership,  but  in  a  unity  of  use,  there  is  not 
infrequently  developed  a  property,  intangible  though  it  may  be,  which  in  value 
exceeds  the  aggregate  of  the  value  of  the  separate  pieces  of  tangible  property. 
Upon  what  theory  of  substantial  right  can  it  be  adjudged  that  the  value  of  this 
intangible  property  must  be  excluded  from  the  tax  lines,  and  the  only  property 
placed  thereon  be  the  separate  pieces  of  tangible  property? 

"Now  it  is  a  cardinal  rule  that  should  never  be  forgotten,  that  whatever 
property  is  worth  for  the  purposes  of  income  and  sale,  it  is  also  worth  for  the 
purposes  of  taxation.  .  .  .  Substance  of  right  demands  that  whatever  be  the 
real  value  of  any  property,  that  value  may  be  accepted  by  the  State  for  the  pur- 
pose of  taxation,  and  this  ought  not  to  be  evaded  by  any  mere  confusion  of  words. 
.  .  .  The  value  which  property  bears  in  the  market,  the  amount  for  which  its 
stock  can  be  bought  and  sold,  is  the  real  value.  Business  men  do  not  pay  cash  for 
properly  in  moonshine  or  dreamland.  They  buy  and  pay  for  that  which  is  of 
value  in  its  power  to  produce  income  or  for  purposes  of  sale.  ...  In  con- 
clusion, let  us  say  that  this  is  eminently  a  practical  age ;  that  courts  must 
recognize  things  as  they  are  and  as  possessing  a  value  which  is  accorded  to  them 
in  the  markets  of  the  world,  and  that  no  fine-spun  theories  about  situs  should 
interfere  to  enable  these  large  corporations,  whose  business  is  carried  on  through 
many  States,  to  escape  from  bearing  in  each  State  such  burden  of  taxation  as 
the  fair  distribution  of  the  actual  value  of  their  property  among  those  States 
requires." 

Difficult  questions  have  arisen  in  the  case  of  corporations  lying  partly  in  one 
State  and  partly  in  another,  for  manifestly  a  State  cannot  tax  property  lying 
outside  of  its  borders.  This  difficulty  has  been  obviated  by  a  plan  of  apportion- 
ment by  which  the  valuation  for  the  entire  property  being  obtained,  so  much 
thereof  is  accredited  to  the  taxing  State  as  the  length  of  mileage  in  that  State 
bears  to  the  entire  mileage  covered  by  the  valuation.  This,  it  is  assumed,  repre- 
sents in  a  fairly  accurate  way  the  valuation  to  be  taken  in  the  making  up  of  the 
State  appraisal.  Such  is  the  plan  adopted  in  Massachusetts,  Connecticut,  Indiana, 
Kentucky,  Ohio  and  probably  elsewhere. 

In  a  recent  case  from  Ohio,  the  Supreme  Court  of  the  United  States  sustained 
this  method.  Under  this  law  telegraph,  telephone  and  express  companies  are 
taxed  on  their  capital  stock,  the  value  of  the  property  within  the  State  of  Ohio 
being  determined  by  the  length  of  mileage  or  gross  receipts  within  the  State. 
The  Court  said  the  act  was  not  repugnant  to  the  commerce  clause  of  the  Consti- 
tution, because  it  was  essentially  a  property  tax,  and  did  not  effect  interstate 
commerce.    And  the  Court  said  further : 

"No  more  reason  is  perceived  for  limiting  the  valuation  of  the  property  of 
express  companies  to  horses,  wagons  and  furniture,  than  that  of  railroad,  tele- 
graph and  sleeping-car  companies  to  roadbeds,  rails  and  ties,  poles  and  wires,  or 
cars.  The  unit  is  a  unit  of  use  and  management,  and  the  horses,  wagons,  safes, 
pouches  and  furniture;  the  contracts  for  transportation  facilities;  the  capital 
necessary  to  carry  on  the  business,  whether  represented  in  tangible  or  intangible 
property,  in  Ohio,  possess  a  value  in  combination  and  from  use  in  connection 
with  the  property  and  capital  elsewhere;   which  could  as  rightfully  be  recognized 


40  THE   NATIONAL   CIVIC   FEDERATION. 

in  the  assessment  for  taxation  in  the  instance  of  these  companies  as  the  others. 
We  repeat  that  while  the  unity  which  exists  may  not  be  a  physical  unity,  it  is 
something  more  than  a  mere  unity  of  ownership.     It  is  a  unity  of  use."  ^^ 

Four  judges  dissented  to  this  decision  upon  the  ground  that  it  was  an 
attempt  to  tax  property  outside  of  the  commonwealth  of  Ohio.  Many  other 
decisions  have  been  rendered  sustaining  apportionment  upon  the  basis  of  mileage 
or  gross  receipts.  From  these  and  other  decisions,  it  seems  to  be  possible  to 
construct  a  consistent,  and,  it  is  hoped,  final  delimitation  of  the  powers  of  the 
States  in  the  matter  of  taxing  this  class  of  property. 

It  would  now  seem  to  be  settled  that  a  State  may  not  tax  corporations 
engaged  in  interstate  traffic : 

First — By  license  or  privilege  taxes,  which  in  terms  or  by  reasonable  implica- 
tion, affect  business  of  an  interstate  character,  nor 

Second — Levy  a  tax  upon  gross  receipts  as  receipts  from  interstate  business, 
nor 

Third — Levy  a  tax  on  tonnage,  freight  or  passengers  carried  from  State  to 
State,  or  from  one  State  into  another. 

On  the  other  hand,  it  is  established 

First — That  a  license  tax,  as  a  tax  upon  business  done  wholly  within  the 
State  is  valid. 

Second — That  a  tax  levied  upon  receipts  from  business  done  or  commerce 
carried  wholly  within  the  State  is  valid. 

Third — That  a  tax  upon  a  domestic  corporation  as  a  franchise  tax,  the  earn- 
ings being  adopted  as  a  means  of  ascertaining  the  value  of  the  franchise ;  or  a 
license  or  excise  tax  upon  a  foreign  corporation  as  a  payment  for  the  privilege 
of  doing  business  in  a  State,  even  when  levied  on  the  gross  earnings  or  the 
franchise,  is  valid,  for  the  courts  have  held  that  a  franchise  to  do  is  as  subject  to 
taxation  as  a  franchise  to  be. 

Fourth — That  a  tax  upon  gross  receipts  after  they  have  lost  their  character 
as  interstate  receipts  and  become  merged  into  a  part  of  the  corporate  property, 
is  valid. 

Fifth — That  taxation  by  the  unit  rule  upon  a  valuation  obtained  upon  the 
capital  stock,  or  the  capital  stock  and  the  bonded  indebtedness,  is  valid  as  a 
property  tax,  franchise  tax  or  excise  tax.  It  is  valid  as  a  property  tax  on  the 
theory  that  a  valuation  thus  obtained  more  accurately  represents  the  value  of  the 
property  than  any  other.  As  a  franchise  tax,  it  has  been  sustained  on  the 
ground  that  the  enjoyment  of  the  franchise  may  be  bestowed  on  any  terms  the 
State  may  determine  on,  and  that  as  the  State  creates  it,  it  may  declare  it  to  be 
property  subject  to  taxation.  As  an  excise  tax,  it  has  been  upheld  on  the  same 
grounds  as  the  franchise  tax,  as  a  payment  for  the  privilege  of  doing  business 
within  the  taxing  commonwealth. 

Sixth — It  has  been  further  held  that  in  the  valuation  and  appraisal  of  corpora- 
tions engaged  in  interstate  business,  a  correct  basis  for  appraisal  for  State 
purposes  is  the  percentage  of  total  valuation  that  the  mileage  or  gross  receipts 
in  the  State  bears  to  the  total  gross  receipts  or  mileage  of  the  corporation. 

It  is  a  matter  for  congratulation  that  a  way  has  been  found  out  of  the 
confusion  which  existed  in  the  taxation  of  railroads  and  transmission  companies. 
Whatever  be  the  details  of  the  method  finally  approved,  whether  it  be  one  of 
appraisal  by  the  stock  and  bonds,  by  the  capitalization  of  the  net  receipts,  or  by  a 


Adams  Express  Co.  vs.  Auditor,  165  U.  S.  194,  221. 


NATIONAL   CONFERENCE   ON   TAXATION.  41 

board  authorized  and  empowered  to  take  into  consideration  every  class  of  evidence 
which  would  tend  to  establish  value,  the  courts  have  at  least  placed  the  stamp 
of  approval  upon  the  valuation  of  such  property  as  a  unit,  and  it  is  believed  that 
this  plan  is  as  equitable  as  any  that  could  be  devised.  For,  as  the  Supreme  Court 
has  said,  such  a  valuation  is,  in  reality,  the  valuation  of  the  commercial  world. 
It  is  the  appraisal  of  those  best  qualified  to  speak  on  the  subject.  And  at  the 
present  time,  with  all  classes  of  corporations  listed  on  the  stock  exchange,  and 
with  daily  sales  of  the  stock  of  all  transportation,  transmission  and  the  larger 
industrial  companies,  a  true  valuation  is  more  easily  attainable  of  them  than  of  any 
other  class  of  property.  Manifestly,  sales  of  stock  under  extraordinary  conditions 
should  not  be  adopted  as  a  standard,  but  an  average  of  the  sales  for  a  given 
period,  as  a  year,  would  relieve  from  any  sudden  or  speculative  variations. 

Such  a  plan  as  this  also  views  the  corporation  as  a  unit  for  business  purposes. 
To  assess  it  in  any  other  way,  as  by  an  inventory  of  its  right  of  way,  stations, 
rolling  stock  and  similar  elements,  is  as  logical  as  the  valuation  of  an  engine, 
pump  or  boiler  obtained  by  reducing  it  to  its  plates,  pistons,  rivets,  bolts,  etc. 

Moreover,  such  a  valuation  as  is  here  suggested  is  in  harmony  with  the 
rules  laid  down  by  the  Supreme  Court. of  the  United  States  in  condemnation  pro- 
ceedings where  it  has  been  attempted  to  appropriate  private  property  for  public 
purposes.  The  Court  has  said  in  such  cases  that  it  must  be  viewed  as  a  going 
concern,  and  payment  has  even  been  required  for  the  franchise  which  the  State 
itself  has  voluntarily  given.  And  it  is  only  suggested  that  in  the  matter  of  taxa- 
tion, the  State  adopt  the  same  basis  of  valuation  that  the  corporation  insists  upon 
in  case  of  appropriation  by  the  State. 

Some  difficulties  of  detail  arise  in  the  method  of  appraisal.  Shall  this  be  by 
hard  and  fast  rule,  or  be  more  or  less  discretionary  with  the  valuing  board?  In 
the  commonwealth  of  Connecticut,  the  tax  is  levied  on  the  market  value  of  the 
stock  and  the  par  value  of  the  funded  and  floating  indebtedness.  If  any  of  the 
indebtedness  is  below  par,  then  the  actual  valuation  of  the  indebtedness  is  taken. 
The  same  method  obtains  in  Massachusetts  and  to  a  limited  extent  in  other 
States,  saving  that  in  Massachusetts  the  valuation  is  based  exclusively  on  the 
capital  stock. 

The  latter  plan,  especially  in  the  Western  States,  would  leave  out  of  consid- 
eration the  chief  element  of  cost,  for  it  is  a  well-known  fact  that  most  Western 
transportation  companies  have  been  constructed  by  the  sale  of  bonds.  The  same 
is  true  of  nearly  all  corporations  operating  under  a  special  or  monopoly  franchise. 
The  Ford  Franchise  Law  recently  passed  by  the  State  of  New  York  provides  no 
hard  and  fast  rule  for  valuing  the  special  franchise,  but  leaves  it  to  be  assessed 
as  real  estate  and  the  valuation  to  be  made  up  by  the  assessing  board  from  such 
evidences  as  the  board  may  acquire  or  adopt. 

It  has  been  contended  by  some  that  a  fair  valuation  may  be  more  equitably 
reached  by  capitalization  of  the  net  earnings  on  a  basis  to  be  agreed  upon. 
This  latter  plan  presupposes,  however,  that  the  rate  of  interest  adopted  is  the 
prevailing  rate  of  interest.  It  moreover  leaves  the  question  of  net  earnings 
always  to  be  determined,  which  is  a  somewhat  difficult  matter.  All  things  con- 
sidered, and  especially  in  view  of  the  necessity  of  having  some  fixed  and  estab- 
lished standard  to  prevent  discrimination  between  different  companies,  it  seems 
wise  to  adopt  the  plan  suggested  by  the  Pennsylvania  Tax  Conference — i.  e.,  the 
valuing  of  property  upon  the  market  value  of  the  stock,  plus  the  par  value  of 
the  bonds,  if  the  bonds  are  at  or  exceed  par,  and  the  market  value  of  the 
bonds  if  they  are  below  par. 


42 


THE   NATIONAL   CIVIC   FEDERATION. 


From  the  valuation  thus  obtained,  certain  deductions  should  be  made  as, 
for  instance,  the  stock  and  bonds  held  by  the  corporation  of  other  corporations 
already  taxed. 

In  the  case  of  corporations  of  an  interstate  character,  fairness  further 
demands  that  from  the  valuation  of  the  corporation  for  its  entire  mileage  there 
should  be  subtracted  the  valuation  of  all  real  estate  held  outside  of  the  State 
and  taxed  locally,  and  which  is  not  necessary  to  the  operation  of  the  road. 

Matters  of  local  expediency  will  determine  the  policy  to  be  adopted  by  the 
taxing  State  in  the  distribution  of  the  valuation  as  thus  obtained.  Two  plans 
have  been  adopted.  In  Connecticut  an  arbitrary  rate  of  ten  mills  is  assessed 
upon  the  entire  valuation  for  State  purposes  and  the  company  relieved  from 
all  local  burdens.  This  is  the  plan  suggested  by  the  Tax  Conference  of 
Pennsylvania. 

Under  the  Nichols  Law  in  Ohio,  the  valuation  is  redistributed  to  the 
counties  and  local  civil  divisions  upon  the  basis  that  the  gross  receipts  of 
each  county  bears  to  the  total  gross  receipts  in  the  State.  And  the  same 
proportion  of  the  State  valuation  is  certified  to  the  local  taxing  authorities  to 
be  by  them  placed  upon  the  tax  duplicate.  The  prevalent  plan  of  apportion- 
ing by  mileage  militates  against  the  large  industrial  and  commercial  centers, 
but  this  injustice  is  in  large  part  corrected  by  distribution  according  to  gross- 
receipts. 

It  would  seem  that  a  better  plan  than  either  were  to  deduct  from  the 
valuation  as  obtained  bv  the  State  Board,  all  terminal  values  and  other  local- 
ized properties  owned  by  the  corporation  within  the  State,  which  values  should 
be  certified  back  to  the  local  officials  as  local  realty.  The  balance  or  franchise 
value  remaining  should  be  divided  among  the  local  taxing  divisions  in  the 
proportion  that  the  gross  receipts  each  subdivision  bears  to  the  total  receipts 
within  the  State.  This  plan  enables  each  county  to  enjoy  a  revenue  from  any 
local  physical  property  and  improvements  and  distributes  the  franchise  value 
in  accordance  with  the  business  transacted,  which  is,  of  course,  the  deter- 
mining element  of  value.  Mileage  apportionment  within  the  State  is  at  best 
but  a  fortuitous  method. 

And  any  plan  which  deprives  the  counties  and  cities  of  the  valuation 
given  their  tax  duplicates  by  transportation  and  transmission  companies,  and 
turns  the  same  over  to  the  State  for  State  taxation  exclusively,  diminishes 
the  duplicate  of  the  divisions  which  can  least  afford  such  a  loss.  This  latter 
method  necessitates,  moreover,  the  adoption  of  a  purely  arbitrary  rate  for 
State  purposes,  or  an  average  rate,  as  is  done  in  Massachusetts.  Moreover, 
if  this  class  of  property  be  appropriated  for  State  purposes,  it  may  subject  the 
corporation  to  heavy  rates  for  State  purposes,  at  a  full  valuation,  while  the 
average  valuation  of  real  estate  throughout  the  State  may  be  very  low,  for 
it  is  a  notorious  fact  that  property  within  the  same  State  may  be  assessed 
in  different  counties  all  the  way  from  5  per  cent  to  100  per  cent  of  its  true  value. 

There  seems  to  be  no  good  reason  why  such  a  method  of  valuation,  based 
upon  stock  and  bonds,  should  not  be  extended  to  all  classes  of  corporations, 
including  those  organized  for  mining,  manufacturing  and  general  industrial 
purposes.  With  this  accomplished,  the  personal  property  tax  upon  stocks 
and  bonds  might  be  abandoned  altogether,  for  such  a  method  would  reach 
all  the  intangible  personalty  within  the  State,  with  the  possible  exception  of 
5tock  and  bonds  of  foreign  corporations,  mortgages,  book  accounts,  etc.  But 
if  the  property  which  they  represent  is  already  taxed  elsewhere,  this  is  double 


NATIONAL   CONFERENCE   ON    TAXATION.  43 

taxation.  The  same  is  true  of  the  taxation  of  mortgages,  while  the  other 
classes  of  intangible  personalty  are  too  insignificant  to  warrant  their  retention. 

It  is  believed  that  the  adoption  of  such  a  method  for  the  valuation  of  all 
corporations  would  so  materially  increase  the  valuation  of  property  within  the 
Eastern  industrial  and  manufacturing  States  as  to  materially  relieve  real 
estate  from  the  burdens  under  which  it  now  labors,  would  simplify  our  tax- 
ing systems  and  would  lead  to  the  eventual  abandonment  of  the  personal 
property   tax. 

fHE  Chairman  (Mr.  Godard  in  the  Chair)  :  The  next  thing  in  order, 
gentlemen,  will  be  a  discussion  of  this  paper.  The  subject  which  Mr.  Howe 
has  treated  so  ably  is  an  interesting  one.  We  will  be  glad  to  hear  from  any 
gentlemen  who  desire  to  discuss  the  subject. 

Mr.  Dudley,  of  Wisconsin:  Mr.  Chairman,  I  am  not  a  lawyer,  but  I  have 
listened  with  much  interest  to  the  citation  of  cases  by  Dr.  Howe.  There  is  one 
<:ase.  however,  I  have  heard  of  that  he  did  not  cite,  and  it  is  a  case  in  171 
U.  S.,  later  than  that  cited  in  154,  I  believe,  in  which  Justice  Miller  held  that 
the  value  of  railway  property  might  properly  be  ascertained  by  taking  the  valu- 
ation of  the  market  quotation  of  the  stocks  and  bonds;  that  by  so  doing, 
the  value  of  the  property  will  be  ascertained  through  the  judgment  of  those 
best  acquainted  with  the  valuation  of  such  property,  or  something  to  that  eflFect. 
That  was,  I  think,  in  154. 

Mr.  Howe:    The  particular  case  I  read  from  was  in  the  92d. 

Mr.  Dudley:  Well,  in  the  171  U.  S.  there  is  a  case  entitled  Pullman  Palace 
Car  Company  against  Central  Transportation  Company.  In  that  case  it  was 
expressly  held  that  the  value  of  the  stock  and  bonds,  while  affected  by  the 
value  of  the  property,  yet  the  value  of  the  property  did  not  conclusively 
control  the  value  of  the  stock  and  bonds,  that  it  is  the  property  which  is 
the  basis  of  the  assessment  or  taxation.  Now,  in  the  present  month  on 
a  single  day  the  quotations  of  a  certain  railroad  on  the  New  York  Stock 
Exchange  varied  from  160  to  1,000.  Will  anyone  say  that  the  value  of 
the  Northern  Pacific  Railway  was  six  and  a  half  times  greater  at  one  hour 
of  that  day  than  another?  Manifestly  not.  Let  us  consider,  then,  what  the 
stock  represents.  Does  it  represent  the  railroad  property  proper,  or  does  it 
in  some  instances  represent  a  great  deal  more?  The  Northern  Pacific  Railway 
has  a  vast  land  grant.  The  stocks,  I  presume,  cover  that  grant.  The  stock  of 
the  Chicago  &  St.  Paul  Railway  covers  all  property  owned  by  the  company.  A 
great  deal  of  that  property  is  subject  to  local  assessment  and  the  valuation  of 
the  stock  would  cover  the  property  which  is  locally  accessible  and  properly  so 
as  the  general  property  of  a  State.  So  that,  if  in  a  given  State  you  assess  a 
railroad  by  ascertaining  the  value  of  the  entire  property,  and  apportioning  that 
in  any  way  among  the  States  through  which  the  road  is  operated,  the  result 
is  that  the  local  property  is  transferred  by  this  means  into  the  various  States 
and  will  be  taxed  as  many  times  as  there  are  States  in  which  the  particular  road 
is  operated.  I  think  that  the  Supreme  Court,  in  a  later  decision,  does  not  hold 
and  expressly  holds  to  the  contrary,  that  a  valuation  of  railroad  property  is  not 
properly  made  by  looking  solely  to  the  stocks  and  bonds. 

Mr.  Howard:  Mr.  Chairman,  I  want  to  say  one  word  in  reference  to  what 
has  been  said  by  the  gentleman  from  Wisconsin.  I  think  he  is  correct  and  that 
the  courts  have  so  held,  I  think,  at  all  times,  practically,  although  it  may  not 
always  have  been  so  stated  in  so  many  words  that  while  the  value  of  the  bonds 
added  to  the  value  of  the   stocks   does   approximately   give   the   value   of  the 


44  THE   NATIONAL   CIVIC   FEDERATION. 

property,  yet  it  does  not  necessarily  do  so.  There  may  be  as  in  the  instance- 
stated,  property  of  a  special  character  in  special  locations,  not  only  lands,  as 
mentioned  of  the  Northern  Pacific  Railway,  but  large  terminal  values  in  some 
of  the  large  cities,  which  ought  to  be  taken  mto  account,  and  which,  I  think,  in 
151  U.  S.,  it  is  said  are  to  be  taken  into  account  by  a  taxing  board  in  determining 
the  actual  value  of  the  property.  It  is,  indeed,  the  value  of  the  property  which 
must  be  determined,  and  while  the  sum  of  the  value  of  the  bonds  and  of  the 
stock  will  in  general  be  an  approximate  value  of  the  property,  it  will  not  nec- 
essarily be  so  at  all  times,  and  it  seems  that  the  just  rule  is,  that  while  this 
should  be  taken  as  a  basis  of  taxation  of  railroads,  it  ought  not  to  control 
entirely,  but  other  matters  affecting  the  value  ought  to  be  taken  into  account. 
Certainly  the  value  of  the  property  measured  by  its  stocks  and  bonds  at  one 
time  is  not  a  correct  indication  of  the  property  if  the  valuation  of  the  stocks 
and  bonds  is  very  different  at  any  other  time.  Those  are  matters  to  be  sub- 
mitted to  the  good  judgment  of  the  taxing  board,  and  consequently  are  simply 
an  element,  generally  being  about  correct  if  not  necessarily  so  at  all  times, 
other  matters,  if  any,  being  taken  into  account  in  determining  the  real  value. 
But,  I  think  there  is  no  doubt  that  in  general,  and  speaking  of  the  average 
value  of  the  bonds  and  stocks,  that  the  taxing  board  will  come  very  near  the 
correct  value,  because,  as  the  courts  have  said,  at  different  times,  that  is  the 
value  placed  on  the  property  by  those  who  know  it  best. 

Mr.  Hines,  of  Louisville,  Ky. :  Mr.  Chairman,  the  gentleman  from  Wis- 
consin made  a  very  pertinent  suggestion  in  regard  to  the  speculative  ele- 
ment of  the  value  of  the  bonds  and  stock.  I  wish  to  suggest  another  consid- 
eration, especially  in  reference  to  bonds,  which  I  have  known  to  be  overlooked 
entirely  by  a  good  many  taxing  tribunals,  and  that  is,  that  it  is  entirely  incor- 
rect to  assume  that  the  premium  on  a  bond,  under  ordinary  circumstances,, 
goes  to  indicate  an  added  value  to  the  property.  The  bondholder  can  never 
get  more  than  the  principal  of  his  bond.  Now,  you  take  a  four  per  cent. 
bond  of  a  solvent  railroad  company,  which  bond  has  fifty  years  to  run;  that 
bond  has  a  value  as  an  investment  by  reason  of  the  term  for  which  it  is  to 
run,  which  is  entirely  aside  from  the  value  of  the  security  back  of  it.  You 
take  another  bond  given  by  an  equally  solvent  railway  company,  bearing  the 
same  rate  of  interest  which  is  to  fall  due  next  year,  and  the  latter  bond  will 
be  worth  par  and  no  more;  the  other  bond  may  be  worth  115.  That  does 
not  signify  at  all  that  the  property  of  the  one  railroad  is  worth  fifteen  per 
cent,  more  than  the  other.  It  signifies  that  the  first  bond  is  simply  a  convenient 
form  of  investment,  that  it  is  going  to  run  fifty  years,  and  for  all  that  time  is 
a  convenient  way  in  which  money  may  be  raised  by  using  that  bond  as  collat- 
eral, or  selling  the  bond,  if  necessary,  so  that  the  premium  upon  the  bond 
ought  in  any  event  to  be  elminated  before  looking  at  it  at  all  as  a  symbol  of 
the  value  of  the  property  back  of  it.  Then  when  you  do  that  you  still  have 
the  speculative  value,  the  speculative  element  in  the  value,  rather,  to  contend 
with;  and  I  would  suggest  that  when  you  have  eliminated  all  objectionable 
elements  from  the  market  price  of  stocks  and  bonds,  you  have  simply  got  at, 
in  an  awkward  way,  what  you  can  get  at  in  a  more  direct  way  by  taking  the 
net  income  of  the  property  and  using  that,  and  when  you  take  that  net  income 
as  the  basis  of  valuation  the  general  result  is  that  you  impose  an  income  tax 
on  the  corporation  when  you  do  not  impose  it  upon  other  persons  in  the 
State.  Take  the  rule  that  is  to-day  popular  of  capitalizing  net  income  at  six 
per  cent.;  assume  the  tax  rate  is   1.50  per  hundred;    that   simply  means  that 


NATIONAL   CONFERENCE   ON    TAXATION.  45 

upon  that  corporation  you  are  imposing  an  income  tax  of  one-quarter  of  its 
net  income.  Until  other  forms  of  property  or  other  citizens  of  the  State 
are  subjected  to  a  Hke  income  tax  there  is  an  unfairness  which  the  holders  of 
-corporate  securities  cannot  reconcile  themselves  to. 

Mr,  Dudley:  Mr.  Chairman,  the  decision  Mr.  Howe  quoted  from  is 
something  like  this:  When  you  have  obtained  a  value  of  all  the  stock  and 
of  all  the  bonds,  then  you  have  obtained  the  value  of  the  railroad  property. 
How  are  you  going  to  ascertain  the  value  of  all  the  stock  and  of  all  the  bonds? 
Are  you  going  to  take  the  market  quotations?  Suppose  they  have  not  been 
the  subject  of  manipulation  and  they  are  at  a  normal  figure,  can  you  even 
then  take  the  market  quotations  given  for  the  sale  of  a  few  bonds  or  a  few 
shares  of  stock  and  multiply  that  figure  by  the  total  number  of  bonds  and 
shares?  It  seems  to  me  that  very  often  a  higher  rate  is  paid  for  a  few  shares 
than  any  man  would  dream  of  paying  for  the  entire  issue  of  shares,  and 
that  for  strategic  reasons.  To  gain  control  a  higher  rate  is  paid  for  a  few 
shares  than  would  be  fair  to  place  as  a  proper  figure  in  considering  the 
value  of  the  entire  issue. 

Mr.  Mather:  Mr.  Chairman,  there  was  one  suggestion  at  the  beginning 
of  this  paper  that  I  think  ought  to  be  elaborated  upon  and  kept  in  mind.  The 
writer  of  the  paper  called  our  attention  to  the  fact  that  the  calling  of  the 
Annapolis  Convention,  which  was  the  beginning  of  the  movement  leading  to 
the  formation  of  the  Federal  Constitution,  was  suggested  in  behalf  of  a 
movement  for  a  line  of  interstate  commerce.  We  all  know  very  well  that 
•George  Washington  was  the  moving  spirit  in  the  calling  of  the  convention 
at  Annapolis.  It  probably  is  not  so  well  known  that  Mr.  Washington  had 
in  mind  at  that  time,  being  then  a  private  citizen  himself,  the  organization  of 
what  afterwards  became  the  Chesapeake  &  Ohio  Canal.  In  other  words, 
"George  Washington  at  that  time  was  the  promoter  of  a  line  of  interstate 
<:ommerce,  and  if  railroads  had  been  known  at  that  time,  George  Washington, 
the  father  of  the  country,  would  have  been  the  promoter  of  a  line  of  rail- 
roads, because  a  railroad  would  have  served  his  purpose  much  better.  But  it 
is  to  be  borne  in  mind  particularly  that  Mr.  Washington  had  not  in  mind  at 
that  time  the  making  of  money  particularly  in  the  establishment  of  his  line 
of  interstate  commerce.  He  saw  as  a  statesman  that  the  future  of  this  coun- 
try depended  upon  its  commercial  development.  He  saw  further,  as  a  states- 
man, that  the  continuance  of  the  little  insignificant  power  on  the  Atlantic 
Coast  depended  on  the  development  of  the  vast  territory  which  lay  back  of 
it,  and  he  saw,  also,  that  the  Spanish  power,  then  intrenched  on  the  Gulf  of 
Mexico,  was  drawing  to  New  Orleans  through  the  natural  artery  of  commerce, 
the  Mississippi  River,  the  commerce  of  this  great  West  and  Northwest.  And 
he  proposed,  as  a  measure  for  the  benefit  and  perpetuation  of  the  government 
which  he  had  given  his  services  to  establish,  the  building  of  a  line  of  inter- 
state commerce,  through  the  only  means  then  known,  of  navigation  by  water. 
He  saw  at  the  outset  that  the  difficulty  in  the  way  of  the  establishment  and 
the  final  success  of  his  scheme  of  interstate  commerce  lay  in  the  power  of  the 
States  to  regulate  and  to  tax  the  instrument  of  that  commerce  when  it  should 
once  be  established.  It  was  then  the  fashion  of  one  State  to  establish  regula- 
tions against  the  commerce  of  another,  and  to  tax,  wherever  possible,  the 
<;ommerce  of  another.  Mr.  Washington,  in  order  to  make  possible  and  successful 
ihis  line  of  interstate  commerce,  suggested  to  the  States  of  Mar>'land,  Virginia 
and  Delaware  the  holding  of  a  convention,  not  for  the  purpose  of  establishing  a 


46  THE    NATIONAL   CIVIC    FEDERATION. 

new  constitution  for  this  country,  but  for  the  purpose  of  agreeing  upon  uniform 
regulations  of  commerce.  When  they  got  together  at  AnnapoHs,  the  broader 
possibiHties  of  a  general  convention  upon  the  questions  of  interstate  com- 
merce presented  itself  to  the  members  of  the  convention,  and  out  of  the  Annap- 
olis Convention  grew  the  movement  which  culminated  in  the  Federal  Con- 
vention and  in  the  Federal  Constitution.  That  historic  fact  is  of  as  much,  if 
not  more  interest  to  us,  in  the  discussion  of  the  problems  of  this  Conference, 
than  it  was  then  in  the  discussion  of  the  problems  of  the  Annapolis  Convention ; 
and  the  developments  of  the  last  few  years  in  the  establishing  of  new  methods 
of  taxation  of  interstate  corporations  and  in  the  upholding  of  the  powers  of 
the  States  as  against  the  properties  of  the  corporations  of  other  States  for 
purposes  of  taxation,  makes  it  essential  that  in  the  consideration  of  the  prob- 
lems now  before  us  we  should  hark  back  to  the  difficulties  that  confronted  the 
country  at  that  time  and  to  the  spirit  that  controlled  the  settlement  of  those 
difficulties.  So  much  for  the  beginning  of  the  gentleman's  paper.  These  con- 
siderations, this  reflection,  leads  me  to  a  conclusion  which  makes  it  impossible 
for  me  to  agree  with  the  writer  of  the  paper  in  his  congratulations  that  a  way 
has  been  found  out  of  the  difficulties  which  have  heretofore  surrounded  the 
taxation  of  this  kind  of  corporations.  It  seems  to  me  that  the  doctrine  which 
was  upheld  in  the  express  cases,  forgets  the  reason  which  lay  at  the  founda- 
tion of  the  Federal  Constitution.  While  it  is  not  a  gracious  thing  for  a  mem- 
ber of  the  Bar  to  criticise  the  Supreme  Court  of  the  United  States,  still,  in  view 
of  the  fact  that  four  out  of  the  nine  Justices  of  the  Supreme  Court  dissent 
from  the  opinion  which  sustains  the  doctrine  of  those  cases,  even  a  member 
of  the  Bar  may  be  permitted  to  voice  his  opposition.  The  Supreme  Court  has 
held,  as  the  gentleman  has  pointed  out  to  us,  that  there  are  elements  of  value 
in  the  business  and  property  of  an  interstate  corporation  which  it  is  not  within 
the  power  of  the  State  to  tax.  But  when  a  State  has  taxed  its  proportion  of 
every  element  that  goes  into  the  valuation  of  a  corporation,  I  insist,  and  the 
dissenting  opinion  in  this  case  also  insists,  that  the  State  has  taxed,  to  the 
extent  of  that  proportion,  every  one  of  those  elements  which  the  Supreme  Court 
has  held  it  had  no  power  to  tax.  Into  the  ultimate  value,  the  unit  value,  as  the 
cases  put  it,  of  an  interstate  corporation  enters  every  element  that  goes  to  pro- 
duce revenue  to  that  corporation.  There  is  there  not  only  the  franchise  of  the 
State  which  levies  the  tax,  but  there  is  the  franchise  of  the  Federal  Government, 
which  grants  to  this  corporation  the  right  and  the  power  to  do  an  interstate 
business.  There  is  in  the  ultimate  unit  value  of  this  corporation  the  value  of 
its  franchise  to  take  tolls  upon  interstate  business,  and  that  value  is  taxed  in 
the  proportion  of  the  unit  value ;  and  yet  it  has  been  distinctly  held  that  the 
power  to  take  tolls  and  the  tolls  themselves,  when  taken,  are  beyond  the  reach 
of  the  State  in  its  taxing  capacity.  So  that  in  this  latter  development  of  the 
power  of  the  State  to  tax  interstate  corporations  we  have  got  back  to  the 
situation  that  existed  before  the  Federal  Constitution  was  adopted.  We  have 
given  to  the  State  the  power  to  regulate  and  the  power  to  tax  interstate  com- 
merce. 

There  is  another  principle  which  has  always  heretofore  been  upheld,  which 
to  my  niind,  and  in  the  view  of  the  dissenters  from  that  opinion,  is  violated  by 
the  decision  and  the  principle  in  these  cases.  The  State  of  Ohio  has  no  power 
to  tax  property  in  the  State  of  New  York.  That  is  perfectly  clear.  Yet  to 
the  value  of  the  express  company's  property  in  the  State  of  Ohio,  has  been 
added  the  value  of  all  its  property  in  the   State  of   New   York  and   of   every 


NATIONAL    CONFERENCE   ON    TAXATION.  47 

other  State  through  which  it  runs,  and  there  has  been  apportioned,  by  the 
arbitrary  action  of  the  taxing  body  of  the  State  of  Ohio  to  the  State  of  Ohio 
its  proportion  of  the  vahie  of  that  property  in  the  other  States,  and  upon 
that  arbitrary  division,  that  arbitrary  grasping  to  itself  by  the  State  of  Ohio, 
the  taxes  of  the  State  of  Ohio  are  assessed.  In  the  State  of  Ohio,  in  the  express 
company  cases,  the  express  company  had  in  actual  property  by  absolute  proof  one 
hundred  fifty  thousand  dollars.  The  value  of  its  property  in  Ohio  and  elsewhere 
and  the  value  of  its  franchises  to  do  an  interstate  lousiness  had  been  accumulated 
and  aggregated,  and  then  divided  by  the  State  of  Ohio  by  an  arbitrary  proportion 
w^hich  it  itself  established.  The  State  of  Ohio  taxed  that  property  in  Ohio  and 
elsewhere,  and  that  inter-state  franchise  to  do  an  inter-stale  business,  and  levied 
an  assessment  upon  that  hundred  fifty  thousand  dollars  of  property  of  one  million 
five  hundred  thousand  dollars  and  levied  taxes  upon  it.  Take  the  case  of  a  rail- 
road, if  that  principle  is  applicable  to  them,  and  it  is,  and  the  States  are 
adopting  it  at  present.  A  railroad  company  in  the  State  of  New  York,  we 
will  say,  has  immense  terminal  facilities  which  cost  millions  and  millions  of 
dollars.  Within  a  few  miles  it  runs  into  the  State  of  Connecticut  and  then  into 
the  State  of  Massachusetts,  and  so  on.  Under  this  principle,  the  value  of 
those  terminals  neces.sarily  goes  to  make  up  the  total  unit  value  of  that  cor- 
poration, and  the  States  of  Connecticut  and  Massachusetts  apportion  to  them- 
selves an  arbitrary  proportion  of  the  value  of  those  terminal  properties,  and 
assess  a  tax  upon  it.  I  say,  Mr.  Chairman,  and  I  have  said  it  before,  that  in 
the  adoption  and  enforcement  of  this  system  of  the  unit  value  we  have  lost 
sight  of  two  important  elements,  two  important  principles  of  law  that  hereto- 
fore we  have  considered  sacred.  One  is  the  very  foundation  principle  upon 
which  our  Federal  Government  was  established,  that  this  Government  cannot 
exist  as  an  aggregation  of  States  with  the  power  in  the  individual  States  to 
regulate  and  to  tax  the  commerce  of  the  other  States ;  and  the  other,  an  equally 
vital  principle  of  law,  though  it  is  not  embodied  in  so  many  words  in  our 
Federal  Constitution,  is  that  no  State  has  the  power  or  ought  ever  to  have  the 
power  to  tax  property  in  another  State.  This  Conference,  when  it  comes  to 
consider  this  question  of  taxation  of  interstate  corporations,  ought  to  look  at 
it,  not  from  the  interests  of  the  individual  States,  not  from  a  desire  to  get 
money  out  of  these  corporations,  but  with  these  underlying,  these  essential, 
elemental  principles  of  our  government  in  mind. 

Mr.  Judson,  of  Missouri :  Mr.  Chairman,  to  a  student  of  our  Constitution 
it  is  no  wonder  that  there  was  such  a  dissent  in  the  Supreme  Court  of  the 
United  States,  because  the  taxation  of  an  interstate  line  of  railroads  does  pre- 
sent one  of  the  most  serious  and  perplexing  problems  that  can  arise  under 
our  dual  form  of  government.  But,  as  I  understand  the  effect  of  the  recent 
decision  of  the  Supreme  Court  of  the  United  States,  however  opinions  may 
differ  as  to  the  reasoning  of  the  Court,  it  amounts  to  this,  that  while  a  State 
cannot  tax  the  privilege  of  doing  an  interstate  business  within  its  borders,  it 
can  tax  all  the  property  tangible  and  intangible  employed  by  a  corporation  in 
doing  that  business.  It  then  becomes,  as  other  property  of  the  State,  subject 
to  taxation,  and  to  tax  it  then  they  adopt  such  methods  of  valuation  as  they 
deem  proper.  Absolute  equality  of  taxation,  as  the  Court  has  said,  is  a  dream. 
We  never  will  realize  it  under  imperfect  human  conditions.  It  is  very  true  that 
the  upit  rule  of  valuation  bears  unequally  in  different  States.  Take  a  railroad 
that  runs,  as  the  railroad  represented  by  the  gentleman  who  has  just  spoken, 
through   several   States.     Its  track  per  mile  is  apparently  worth  much  less  on 


48  THE   NATIONAL   CIVIC   FEDERATION. 

the  plains  of  your  State,  Mr.  Chairman,  than  in  the  suburbs  of  Chicago;  but 
it  is  precisely  the  same  principle  we  employ.  In  Missouri,  and  no  doubt  other 
States,  we  tax  our  railroads  as  an  entirety  in  the  State,  and  the  valuable 
roadbed  in  St.  Louis  terminals  are  ranked  precisely  in  the  valuation  as  the 
roadbed  in  a  rural  county  of  the  State.  In  other  words,  St.  Louis  gets  no 
benefit  from  the  valuable  terminals  of  the  railroad  because  the  roadbed  was 
taxed  as  a  whole  by  the  State  Board,  and  is  apportioned  per  mile  to  every  part 
of  the  State,  I  understand  the  same  principle  is  in  force  in  other  States — 
Western  States.  So  that  after  all  it  is  an  approximation,  but  we  must  approx- 
imate in  these  matters.  The  gentleman  from  Louisville  suggested  that  valuing 
a  railroad  by  its  earnings  was  imposing  in  effect  an  income  tax.  That  does 
not  strike  me  as  the  correct  view.  If  I  go  to  buy  a  house  the  very  first  question 
I  would  ask  as  to  the  value  of  the  house  is,  what  it  produces,  its  rental,  and 
then  capitalizing  that  rental  we  reach  a  standard  in  value.  That  is  precisely 
what  you  do  in  applying  a  standard  of  net  earnings  to  a  railroad  property 
or  any  other  corporation.  It  is  an  approximate  means  of  ascertaining  values. 
I  entirely  agree  that  it  is  unjust  to  tax  a  railroad  on  a  different  proportion 
of  its  value  from  an  individual,  and  that  is  one  of  the  most  serious  problems 
in  our  taxing  system — the  inequality  of  valuation.  It  is  unjust  to  tax  farms 
at  twenty  or  thirty  cents  on  a  dollar,  as  we  do  in  my  State,  and  then  tax 
a  railroad  at  eighty  to  a  hundred  cents  on  its  valuation.  Justice  requires  the 
same  standard  applied  to  all  properties,  but  we  must  adopt  an  approximate 
measure  "of  ascertaining  value.  There  is  another  point  in  this  connection  that 
it  seems  to  me  is  very  important  to  these  corporations  and  to  the  public,  and 
that  is  this:  We  ought  to  have  a  fixed  standard  of  valuation  which  would  be 
simply  a  matter  of  arithmetic,  and  leave  as  little  as  possible  to  the  discretion 
of  public  officials.  Our  present  method  of  valuing  these  properties  by  Boards 
elected  or  appointed  simply  forces  these  corporations  into  our  politics  and  is 
altogether  unwise  and  injudicious.  If  we  could  have  an  ideal  method  of  tax- 
ation ;  that  is,  ideal  as  far  as  human  conditions  would  permit,  it  would  be  to 
take  the  value  of  a  road  based  upon  its  earnings,  because  it  has  no  value  if  it 
has  no  net  earnings;  let  that  be  capitalized  as  its  value  and  then  apportioned 
according  to  mileage  in  the  different  States.  We  know  precisely  what  taxes 
it  has  to  pay.  It  would  not  have  to  go  into  politics.  It  would  not  be  interested 
in  the  appointment  of  an  Assessing  Board,  and  we  would  have  all  complaint 
about  taxation  on  that  score  removed.  But  we  must  take  the  situation  as  we 
find  it.  The  Supreme  Court  has  decided  that  it  is  the  property  tangible  and 
intangible,  that  part  which  is  in  the  State,  apportioned  to  the  total  value,  and 
taxed  by  the  State.  What  we  should  all  aim  at  is  to  so  elevate  public  opinion 
as  to  see  that  it  is  taxed  fairly,  and  only  fairly,  and  on  a  level  with  other 
property. 

The  Chair  (Mr.  Godard  in  the  chair)  :  How  about  feeders  or  branch 
lines  which  may  be  owned  by  separate  corporations,  and  which  of  themselves 
produce  no  income,  but  are  valuable  because  of  their  connections?  How  would 
you  treat  them  under  your  proposed  plan? 

Mr.  Judson:  If  they  belonged  to  the  corporation  they  would  have  to  take 
the  burden  of  the  profit.  If  the  corporation  has  branches  which  it  controls 
which  produce  nothing  it  would  presumably  show  itself  on  the  profits,  on  what 
they  earn  on  the  balance  of  the  line.  If  it  did  not  help  them  they  would  not 
have  it.  In  my  State  we  tax  according  to  the  estimate  of  value,  and  it  is 
apportioned  to  the  different  counties  of  the  State  according  to  mileage.     The 


NATIONAL   CONFERENCE   ON   TAXATION.  49 

county  that  has  a  hundred  miles  gets  twice  the  railroad  valuation  for  taxation 
that  a  county  which  has  fifty  miles  will  get. 

Mr.  Sloan,  of  Oswego,  N.  Y. :  I  do  not  rise,  Mr.  Chairman,  to  speak  upon 
the  question  that  appears  to  be  immediately  under  discussion  at  this  time.  In 
fact,  I  do  not  know  that  there  is  any  specific  thing  in  question  before  this 
Conference,  but  I  rise  more  to  ask  whether  it  would  not  be  well  for  economy 
of  time  and  equally  as  efficient  a  transaction  of  the  business  engaging  the 
attention  of  this  body  to  name  a  time  now,  some  little  time  in  the  future, 
whatever  time  should  be  deemed  most  advisable  according  to  the  sentiment  of 
the  assemblage  here,  when  the  discussion  of  this  specific  branch  of  the  general 
<luestion  shall  terminate,  so  that  other  branches  can  be  taken  up  and  discussed 
in  the  same  specific  way  that  this  question  of  assessment  has  been  discussed. 
We  have  heard  some  excellent  addresses  here  to-day..  I  think  the  session 
of  this  body  at  this  time  is  going  to  bear  fruit.  I  believe  we  have  had  some 
very  illuminating  addresses,  the  prepared  addresses  in  particular,  and  a  great 
many  suggestions  have  been  made  in  the  running  fire  of  debate  that  are  worthy 
of  thought  and  reflection,  and  I  may  say  of  preservation.  In  that  connection 
I  wish  to  make  a  suggestion  if  this  body  will  allow  me  to  do  so.  As  I  understand 
it  is  the  general  purpose  and  expectation  of  the  promoters  of  this  movement 
which  has  led  up  to  this  Convention,  and  I  do  not  use  the  word  promoters 
in  a  commercial  sense,  for  I  do  not  think  there  is  anything  but  a  desire  for 
the  general  good  and  the  general  welfare  of  the  people  of  the  United  States 
that  is  at  the  bottom  of  the  effort  that  the  gentlemen  have  made  to  bring  about 
this  meeting  and  this  discussion,  but  the  effect  of  these  speeches  and  this 
discussion  here  to-day  should  be  broad  and  wide,  and  should  reach  out  beyond 
this  meeting.  We  should  take  some  action  here  to  secure  their  publication 
according  to  the  stenographer's  notes  and  give  a  wide  and  systematic  circulation 
of  the  pamphlet  they  would  make.  It  would  not  be  such  a  very  bulky  document. 
I  think  it  would  be  well  to  make  provisions  specifically  so  that  there  would 
be  no  omission  and  no  oversight,  by  a  resolution  or  otherwise,  so  that  the 
proceedings  of  this  Convention  should  be  printed  and  circulated  in  the  manner 
I  have  suggested.  I  would  say  that  I  think  this  document  should  be  sent,  not 
only  to  the  delegates  of  this  Convention,  but  to  every  daily  newspaper  in 
the  United  States,  in  order  that  we  might  accomplish  what  was  felicitously 
expressed  by  Senator  Garfield  in  the  way  of  arousing  and  awakening  the  public 
conscience  to  the  importance  of  securing  more  equitable  taxation  in  this  country. 
I  make  that  suggestion  now,  hoping  that  it  may  be  followed  by  a  motion  at 
the  proper  period  of  the  proceedings  of  this  body. 

I  know  very  little  about  this  question  of  taxation  as  a  result  of  any  study; 
and  I  have  received  a  good  deal  of  information  here.  The  more  information 
I  gather  from  the  speeches  such  as  have  been  made  here  the  more  I  am  impressed 
with  the  great  importance  of  this  question,  and  hence  it  occurs  to  me  that  we 
ought  not  to  let  the  proceedings  die  with  the  adjournment  of  this  Convention, 
but  that  what  has  been  said  here,  and  so  well  said,  should  be  preserved  in  the 
way  I  have  suggested  in  order  to  induce  more  discussion  which  a  wide  circula- 
tion of  the  proceedings  of  this  Convention  would  naturally  bring  about  on  the 
part  of  the  newspapers  and  be  brought  to  the  attention  of  people  who  are 
thinking  on  this  subject.  The  thought  of  one  man  expressed  is  very  apt  to 
lead  to  another  thought,  and  by  this  concentration  upon  the  question  you  will 
iihimately  bring  out  the  great  results  that  the  people  are  interesed  in  and  which 
the  gentlemen  who  have  brought  together  this  body  of  intelligent  men  are  so 


so 


THE   NATIONAL   CIVIC   FEDERATION. 


desirous  to  accomplish.  I  will  not  make  any  motion,  Mr.  Chairman,  but  I  hope 
that  in  order  that  the  business  may  be  facilitated  more  rapidly  that  a  time  be 
named  when  the  discussion  of  this  particular  branch  of  the  question  shall  be 
discontinued  and  given  opportunity  for  the  discussion  of  other  branches  of  it. 
Professor  Seligman,  who  knows  a  great  deal  about  this  question  and  has 
probably  done  as  much  work  as  any  other  man  upon  it,  might  suggest  a  time 
when  he  thinks,  if  he  approves  of  this  suggestion,  that  the  discussion  of  this 
branch  of  the  question  should  be  discontinued. 

The  Chairman  (Mr.  Godard  in  the  chair)  :  In  response  to  the  suggestion 
of  Senator  Sloan  the  Chair  would  state  that  a  Committee  on  Publication  has 
already  been  appointed  and  that  matter  will  be  taken  up.  The  question  of 
limiting  this  debate  is  in  the  hands  of  this  Conference  for  its  action  whenever 
you  think  advisable,  but  I  hope  you  will  all  bear  in  mind  that  we  have  a  five- 
minute  rule  here.     The  gentlemen  of  this  Conference  are  much  in  earnest. 

Mr.  Sloan  :  Mr.  Chairman,  I  want  to  say  a  single  word.  I  do  not  know 
anything  about  the  organization  of  this  body  or  what  facilities  you  have  for 
paying  expenses  of  doing  this  printing  efficiently.  I  feel  that  there  ought  to 
be  an  expression  of  this  body  that  not  only  the  printing  should  be  done,  but 
the  circulation  of  it  should  be  sure  and  certain.  Let  this  information  go  out, 
and  if  there  is  any  expense  attached  to  it  that  there  is  no  way  provided  for 
I  have  no  doubt  that  there  would  be  enough  gentlemen  who  would  make  volun- 
tary contributions  for  that  purpose  if  it  were  necessary.    I  should  like  to  for  one. 

Secretary  Easley  :     We  have  your  name  on  the  list. 

Senator  Sloan:  I  shall  be  happy  now,  or  at  any  other  time,  to  respond 
to  any  call  the  gentleman  may  make.     And  he  may  name  the  amount. 

Mr.  Niles^  of  Maryland :  Mr.  Chairman,  I  want  to  say  that  I  most  heartily 
sympathize  with  what  Senator  Sloan  has  said.  The  discussion  I  have  heard 
on  this  question  has  well  paid  me  for  coming  here,  but  at  the  same  time  it 
seems  to  me  that  the  great  effect  of  it  upon  me  has  been  to  bring  me  back  tc 
what  I  might  call  the  storm  center  of  the  discussion  of  this  morning,  and  thai 
is  the  tax  on  intangible  personal  property.  This  morning  it  was  evident  that 
there  were  two  sides,  two  points  of  view,  from  which  to  look  at  the  matter. 
At  first  it  was  said  that  the  tax  on  personal  property  ought  to  go,  for  two 
reasons:  First,  that  it  was  impracticable,  and,  second,  that  it  was  unjust.  A 
little  later  the  gentleman  from  Indiana  and  some  others  stated  the  tax  on 
personal  property  ought  to  stay,  because  if  it  had  been  impracticable  under  old 
regulations  new  regulations  should  be  made  to. bring  it  in  because  it  was  just. 
It  seems  to  me  that  is  the  storm  center  of  the  discussion,  and  if  this  particular 
question  throws  a  side  light  upon  that  discussion  it  will  be  of  immense  value. 
An  answer  to  the  question  I  am  about  tt)  put  will,  I  think,  point  somewhat  in  that 
direction.  In  the  opinion  of  the  gentleman  from  Indiana  it  seemed  to  go  without 
saying  that  a  man  who  owned  shares  of  stock  or  bonds  in  a  corporation  ought 
to  pay  his  taxes  on  them  because  he  would  not  give  them  away  for  nothing. 
What  I  would  like  to  know  is  this,  assuming  that  it  is  constitutional,  and  that 
it  is  right  to  value  the  whole  stock  of  the  corporation  as  a  unit,  its  stocks  and 
bonds  together,  and  tax  the  corporation  on  that  whole  value,  then  does  the 
gentleman  from  Indiana,  or  the  other  gentleman  who  spoke  on  that  side,  think 
that  those  certificates  of  stock  ought  to  be  again  taxed  in  the  hands  of  the 
holders?  It  seems  to  me  that  that  is  the  crucial  point.  I  do  not  know  whether 
I  make  myself  clear,  but  my  idea  is  this,  taking  a  scheme  such  as  has  been 
suggested  and  taxing  the  whole  value  of  the  corporation,  stocks  and  bonds,  that 


NATIONAL   CONFERENCE   ON    TAXATION.  51 

represents  all  that  the  corporation  owns.  You  tax  the  corporation  on  that.  Now, 
then,  do  you  still  tax  the  holder  of  those  stocks  and  bonds?  Is  there  anybody 
here  who  would  say  that  that  was  just?  And,  after  all,  is  not  that  what  we  are 
after?  As  some  of  the  other  gentlemen  have  said,  it  is  not  what  will  yield 
the  most  money,  but  what  will  do  the  most  justice.  If  it  is  true  that  after 
you  have  taxed  the  corporation  on  its  whole  value  of  both  stock  and  bonds, 
is  it  not  true  that  you  have  taxed  the  whole  value  of  the  corporation?  Is  it  not 
true,  as  Mr.  Williams,  of  Baltimore,  has  said,  that  the  stocks  and  bonds  them- 
selves are  simply  representatives  of  value,  and  are  not  property  at  all ;  and  could 
not  they  all  be  burned  up  and  leave  the  corporation  as  a  corporation  neither 
richer  nor  poorer?  Could  not  all  the  bonds  and  stocks  of  the  New  York  Central 
Railroad,  if  the  value  of  the  corporation  had  been  once  calculated  in  such  a 
way  as  has  been  suggested,  be  burned  up,  and  although  some  of  the  holders 
might  find  their  property  relatively  increased  or  decreased,  would  not  there 
be  just  the  same  property  in  the  State,  except  the  value  of  the  paper,  as  if  those 
stocks  and  bonds  were  still  in  the  hands  of  the  holders?  If  that  is  so,  does  not 
that  throw  a  light  upon  this  discussion?  Is  it  not  true  that  when  you  tax  a 
corporation  in  some  such  way  as  suggested  here  by  the  unit  rule  that  you  have 
taxed  the  only  thing  of  value,  and  that  the  addition  of  taxes  after  that  on 
so-called  intangible  property  is  unjust;  and  is  not  that  really  the  reason  why 
it  is  not.  practicable  because  there  is  a  sentiment  in  the  minds  of  the  people 
that  if  you  tax  a  corporation  once  you  have  no  business  to  tax  it  over  again  in 
the  hands  of  the  people  who  hold  the  title  to  the  corporation  assets?  If  you 
tax  a  horse  that  belongs  to  three  people  and  is  worth  $150.00,  and  you  tax  it 
once  at  the  rate  of  $150.00,  then  are  you  going  to  tax  the  evidence  of  each  of 
those  three  people  that  they  own  $50.00  worth  of  value  in  that  horse  over 
again?  I  apprehend  not.  It  seems  to  me  this  discussion  ought  to  bring  about 
a  clearer  view  in  regard  to  the  position  of  the  certificates,  the  various  pieces 
of  paper  indicating  shares  of  stocks  and  bonds,  and  throw  some  light  on  the 
question  as  to  whether  personal  property,  intangible,  in  the  hands  of  the  holders 
of  the  paper  certificates,  of  some  value  and  which  ought  to  be  taxed  in  some 
way,  is  properly  taxable  in  the  hands  of  the  holder. 

Mr.  Russell,  of  Delaware:  Mr.  Chairman,  I  have  been  as  interested  as 
any  member  of  this  Conference  in  the  discussion  that  has  taken  place  at  these 
two  sessions,  but  it  seems  to  me  that  we  have  not  gotten  at  the  germ  of  the 
issue.  We  have  been  discussing,  not  the  broad  question  of  taxation,  but  rather 
the  question  of  the  assessment  of  property  for  the  basis  of  taxation.  It  is  true 
that  no  system  of  taxation  is  perfect  that  has  not  an  ample  provision  and  a 
well-defined  provision  for  assessing  the  property  upon  which  the  taxes  are  to 
be  laid.  But  we  might  go  on  with  the  discussion  of  the  best  method  of  assess- 
ment for  weeks  and  months,  and  I  doubt  very  much  whether  we  would  be 
able  to  arrive  at  that  quality  which  must  always  lie  at  the  foundation  of  a  true 
and  just  system  of  taxation  in  view  of  the  various  kinds  of  property  which 
we  propose  to  make  the  subject  of  taxation.  For  instance,  we  have  heard  a 
great  deal  this  afternoon  about  the  assessment  of  corporations,  and  the  Supreme 
Court  appears  to  lay  down  very  clearly  and  distinctly  as  a  principle  of  law 
that  the  bonds  and  capital  stock  are  a  fair  basis  of  taxation,  and  that  the 
property  of  the  corporation  may  be  fixed  at  the  aggregate  amount  of  the  capital 
Stock  and  the  bonds.  We  are  met  at  once  with  the  fact  that  in  the  market 
these  securities  fluctuate,  to-day  selling  far  beyond  their  value,  another  day  far 
below   their  value.     The   illustration   of  the    Northern    Pacific   deal    shows   how 


52  THE   NATIONAL   CIVIC   FEDERATION. 

unreliable  market  quotations  may  be,  and  hence  it  seems  to  me  that  we  must 
arrive  at  a  method  of  equalization  not  only  in  respect  to  real  property,  but 
personal  property  also,  and  get  as  near  as  it  is  possible  to  get  to  a  fair,  honorable 
basis  of  assessment.  But  beyond  that,  and  to  this  I  wish  to  direct  your  atten- 
tion in  particular,  is  the  question  of  the  tax  levy.  For  what  matters  the  assess- 
ment if  it  be  high  or  low  providing  it  is  equal,  providing  it  is  on  the  same 
basis  ?  It  is,  after  all,  the  tax  rate  which  affects  us ;  if  it  is  thirty  cents  it  may  be 
easy  to  pay,  whatever  the  assessment  may  be,  but  if  it  is  sixty  cents  that  is 
quite  another  matter.  And  beyond  that  and  as  the  cause  that  affects  the  levying 
and  fixing  of  the  tax  rate  is  the  question  of  the  expense  of  government.  In 
the  exercise  of  this  great  power  of  taxation  by  the  government,  which  is  one  of 
the  greatest  of  its  powers,  for  it  affects  so  directly  the  interests  of  the  people, 
we  must  look  to  an  honest,  efficient  and  economical  administration  of  the  public 
service;  we  must  look  to  the  cutting  down  of  expenditures,  which  can  be 
accomplished  only  by  the  adoption  of  a  comprehensive  system  of  local  and  State 
administration,  and  as  citizens  we  must,  when  occasion  requires  it,  rise  above 
party  and  see  to  it  that  only  those  persons  are  placed  in  charge  of  the  public 
service  who  have  our  full  confidence  and  who  can  be  relied  upon  to  honestly 
discharge  the  duties  upon  tl.^m.  Mr.  Chairman,  it  was  not  my  purpose  to 
engage  in  any  extended  discussion,  but  my  object  at  the  moment  in  rising  was 
to  direct  the  attention  of  the  conference  a  little  beyond  the  mere  matter  of 
assessment,  to  that  of  the  tax  rate  and  of  the  expense  of  administration,  which  is 
really,  after  all,  a  problem  at  which  we  are  driving. 

The  Chairman  :  (Mr.  Judson  having  resumed  the  chair.)  Ex-Secretary 
of  the  Treasury  Fairchild  was  expected  to  be  here  to-day,  but  unfortunately  has 
been  detained  and  has  sent  some  remark^  on  the  subject  of  the  taxation  of  banks 
and  trust  companies.  An  opportunity  for  discussion  will  be  given  after  the  paper 
is  read.  He  has  sent  his  paper  here  and  it  will  be  read  by  his  Secretary,  Mr. 
Root. 

TAXATION  OF  BANKS  AND  TRUST  COMPANIES. 

BY   HON.    CHARLES    S.    FAIRCHILD. 

The  fact  that  a  paper  is  called  for  at  this  Conference  devoted  to  the  special 
subject  of  the  Taxation  of  Banks  and  Trust  Companies,  raises  the  presumption 
that  property  in  such  institutions  is  different  from  other  property  and  should  be 
differently  treated  in  the  tax  laws ;  at  least  there  must  be  a  popular  idea  that  such 
is  the  case.  Therefore  it  is  necessary  to  define  such  differences,  if  any  there  be, 
before  the  subject  of  the  taxation  of  such  institutions  can  be  considered  intelli- 
gently. 

Before  one  of  these  corporations  is  formed  there  is  in  a  city  or  village,  prop- 
erty belonging  to  some  of  the  inhabitants  thereof.  Influenced  by  some  motive, 
these  people  determine  to  take  a  portion  of  their  property  out  of  the  investments 
that  it  is  in,  and  put  the  cash  thus  realized  into  a  common  fund,  which  shall  be 
loaned  to  any  of  the  people  of  the  community  who  may  wish  to  use  it  in  carrying 
on  the  business  of  that  community.  In  the  great  majority  of  cases  the  motive  is 
the  promotion  of  the  general  welfare — distinctly  patriotic — a  conviction  that 
the  place  needs  that  which  this  combining  of  capital  alone  can  give. 

In  other  words,  banking  facilities  are  needed,  and  they  are  as  necessary 
to  the  prosperity  of  an  industrial  community  as  in  any  other  thing  that  it  may 
have.    If  there    be  in  the  place,  one,  two,  three  or  four  men  who  will  use  their 


NATIONAL    CONFERENCE   ON    TAXATION. 


53 


property  in  this  way,  the  people  can  get  the  use  of  a  bank  quite  naturally  and 
easily.  Usually,  however,  such  is  not  the  case:  the  property  available  for  this 
service  is  scattered  in  many  hands — perhaps  in  the  hands  of  women  or  people 
in  no  position  to  loan  it  safely  to  their  neighbors.  In  this  position  it  is  inef- 
fective and  of  comparatively  small  benefit  to  the  town.  If  they  know  their  inter- 
ests they  will  not  put  their  little  funds  together  in  a  partnership  for  banking 
purposes ;  it  is  too  dangerous,  because  of  the  unlimited  liability  of  the  partnership. 
But  some  one  may  ask,  What  liability  do  they  incur  when  they  loan  their  money? 
None,  surely.  No  more  when  combined  than  if  each  had  loaned  his  own  share 
separately;  and  I  may  add  if  nothing  was  done  save  to  loan  the  original  capital, 
but  little  would  have  been  accomplished  by  the  combination.  If  it  incurred  no 
liabilites  it  would  be  of  little  public  use.  The  debts  of  the  banks  make  them  a 
power  for  usefulness  beyond  any  other  single  power.  Their  capital  is  only  a 
means  to  enable  them  to  incur  the  indebtedness  and  thus  become  beneficient. 

It  would  be  interesting  to  follow  the  original  capital  of  the  bank  under  the 
system  of  deposit  and  cheque  to  see  how  many  times  that  capital  had  been  multi- 
plied and  then  to  consider  how  much  the  community  had  been  benefited  by  this 
multiplication  of  capital.  It  is  obvious  that  when  the  capital  of  a  bank  has 
been  loaned  once  and  then  deposited  by  the  borrower  in  the  bank  that  loaned 
it,  the  effective  power  of  the.  community  has  been  increased  by  the  amount  of 
that  bank's  capital;  and  that  each  time  the  process  is  repeated,  the  result  is  re- 
peated. Of  course  in  practice  this  process  is  circuitous,  through  many  persons, 
and  when  there  is  more  than  one  bank  or  trust  company,  through  several  insti- 
tutions, but  the  result  is  the  same.  As  has  been  said,  the  bank  now  acts  as  an 
insurer  of  the  credits  of  the  members  of  the  community — the  interest  paid  by  the 
borrowers  being  premium  for  insurance;  and  the  bank's  capital  is  the  reserve 
against  the  insurance.  This  premium  must  be  large  enough  to  pay  the  expenses 
of  the  institution,  make  good  losses,  give  a  return  upon  the  capital  and  also  pay 
the  interest  which  is  now  given  by  banks  to  many  depositors  and  by  trust  com- 
panies to  almost  all  depositors.  This  payment  of  interest  should  take  the  place 
of  the  implied  obligation  on  the  part  of  the  corporation  to  loan  depositors  in 
proportion  to  the  amount  of  their  deposits.  Thus  the  bank  acts  as  the  guarantor, 
go-between,  and  generally  useful  man  of  all  the  members  of  the  community. 

Now  what  is  there  in  all  of  this  that  calls  for  peculiar  or  enlarged  taxation, 
as  distinguished  from  other  property  or  business,  private  or  corporate?  The 
property  of  the  stockholders  of  the  bank  is  no  greater  than  it  was  when  in  other 
forms  of  investment;  if  it  accumulates,  the  accumulation  will  be  property  just 
the  same  as  the  accumulations  would  have  been  from  the  other  investments,  and 
should  be  subject  to  no  more  taxation  than  any  other  property.  All  property 
should  be  equally  taxed ;  all  should  have  like  burdens  and  like  exemptions.  No 
one,  I  am  sure,  will  claim  that  property  in  bank  stock  should  be  fined  because  it 
is  property  in  that  form;  for  that  would  imply  that  it  should  be  punished  or 
prohibited.    The  tax  laws  should  not  be  used  for  that  purpose. 

But  it  may  be  claimed  that  the  franchise  grants  privileges  which  should  be 
taxed.  This  is  a  valid  claim,  provided  the  franchise  gives  something  of  money- 
earning  power  that  would  not  exist  except  for  the  franchise.  This  is  not  true, 
however,  of  a  bank  or  a  trust  company.  Neither  is  a  monopoly.  Under  the  law 
any  persons  who  wish  to  do  so  may  form  either  kind  of  corporation.  This  busi- 
ness is  freely  open  to  competition  and  in  fact  is  subject  to  very  sharp  competition. 
What  is  accomplished  by  the  incorporation  is  to  put  a  large  number  of  men  and 
women  of  small  means  in  a  position  to  compete  with  the  small  number  of  men 


54  THE   NATIONAL   CIVIC   FEDERATION. 

with  large  wealth  who  can  do  the  same  business  either  singly  or  in  partnership. 
I  dismiss  the  bank  note  subject  because  that  gives  no  earning  power  greater 
than  that  which  comes  from  the  deposit  system;  it  is  for  the  convenience  of  the 
public,  and  it  is  entirely  at  its  discretion  to  use  it  or  not,  as  it  finds  most  advan- 
tageous. 

It  may  be  claimed  that  the  limitation  of  the  liability  of  stockholders  is  some- 
thing that  justifies  taxation.  This  is  not  true;  there  is  nothing  in  this  limitation 
that  gives  earning  power  with  which  to  pay  taxes.  It  is  not  provided  under  the 
law  primarily  on  account  of  the  stockholders.  It  is  in  the  law  for  the  benefit 
of  the  community  as  a  whole.  It  is  the  inducement  which  the  government  offers 
to  the  men  of  small  means  to  put  their  property  at  the  service  of  the  public  in 
this  efficient  way,  to  enter  into  competition  with  the  men  of  large  means  and 
thus  render  a  service  without  which  our  present  business  civilization  could  not 
exist.  Through  this  means  resources  and  property  are  greatly  increased,  and 
the  bases  of  taxation  are  increased  in  like  measure.  I  submit  that  property  thus 
employed  with  these  results  should  not  be  either  fined  or  taxed  more  than  other 
property.  It  is  hardly  necessary  to  suggest  that  in  the  long  run  all  of  the  taxes 
upon  these  institutions  must  be  contributed  by  those  who  use  them,  either  as 
depositors  or  borrowers. 

I  do  not  discuss  the  subject  of  the  differences  between  the  taxation  of  banks 
and  trust  companies.  They  should  be  taxed  alike  and  equally.  Banks  have 
been  taxed  too  much,  unfairly,  without  intelligence,  and  to  the  injury  of  the 
pubHc;  but  this  is  not  a  reason  why  trust  companies  should  be  also  taxed  in  a 
like  wrongful  manner.  The  remedy  lies  in  doing  right  toward  banks,  not 
wrong  towards  trust  companies. 

There  is  one  other  clg.im  that  has  been  urged  for  the  taxation  of  trust  com- 
panies. That  is  the  advantage  which  comes  from  the  continuous  existence  of 
such  corporations.  In  this  respect  they  differ  from  no  other  corporations ;  and 
judging  from  my  own  experience,  I  find  that  the  amount  of  business  and  profits 
coming  from  that  fact  is  very  small,  all  of  it  derived  by  the  company  with  which 
T  am  connected  during  its  twelve  years  of  existence  would  not  pay  the  tax  im- 
posed upon  us  in  this  one  year  by  the  State  of  New  York. 

It  is  charged  that  these  companies  do  not  pay  taxes  because  they  pay  so  small 
a  sum  directly.  They  do  pay,  however,  through  their  holdings  of  public  se- 
curities, which  by  a  misuse  of  words  are  called  "exempt  from  taxation."  Such  se- 
curities are  not  exempt,  in  truth;  the  tax  is  commuted  by  the  low  rate  of  in- 
terest and  high  price  of  such  public  obligations.  It  is  so  intended  by  the  law 
makers  when  they  enact  the  laws.  They  do  not  mean  to  make  a  gift  to  the 
buyers  of  those  securities ;  they  intend  that  the  governments  shall  get  pay  for  the 
so-called  exemption,  and  they  do  get  it.  When  the  invitation  of  government 
has  been  accepted  and  then  a  tax  is  also  enacted,  it  would  seem  that  repudiation 
is  involved,  which  in  no  wise  differs  from  any  other  repudiation. 

It  may  be  asked  why  trust  companies  do  not  hold  bonds  and  mortgages  and 
pay  the  tax  upon  them,  instead  of  holding  the  so-called  exempt  securities.  The 
answer  is  that  upon  the  exempt  securities  they  pay  the  tax  once ;  upon  the  bond 
and  mortgage  they  pay  twice,  and  after  the  second  payment  but  little  income  is 
left  for  the  holder  of  the  mortgage.  This  comes  about  in  this  way.  Bonds  and 
mortgages  are  exempt  by  law  from  taxation  in  the  hands  of  their  great  holders 
— the  savings  banks  and  life  insurance  companies ;  they  are  practically  exempt  in 
the  hands  of  most  other  holders,  because  the  Assessors  do  not  find  them.  The 
result  of  this  long  continued  exemption  has  been  a  very  low  rate  of  interest — four 


NATIONAL   CONFERENCE   ON   TAXATION. 


55 


per  cent,  in  New  York  City  upon  such  mortgages  as  a  trust  company  can  invest 
its  capital  in.  This  condition  of  cheap  borrowing  has  raised  the  value  of  city  real 
estate,  and  through  this  increased  value  the  tax  is  collected  from  the  mortgagee — 
he  having  paid  it  in  the  low  interest  rate.  Under  these  circumstances  when  the 
holder  of  a  mortgage  is  forced  to  pay  a  tax  upon  it  directly,  he  pays  a  second 
time,  with  the  result  that  the  net  income  from  his  investment  is  only  about  1.70 
per  cent,  in  New  York  City.  I  claim  that  the  mere  statement  of  this  fact  is  proof 
of  my  assertion.  If  taxes  were  collected  upon  all  mortgages,  the  rate  of  interest 
upon  them  would  rise  and  in  time  the  average  value  of  real  estate  would  cor- 
respondingly fall.  The  net  result  in  taxable  values  would  be  the  same  as  under 
present  practices.  As  the  matter  now  stands  he  who  happens  to  pay  a  tax  upon  a 
bond  and  mortgage  is  in  reality  pillaged.  I  have  given  sufficient  reasons  for  the 
fact  that  trust  companies  do  not  hold  such  securities  to  a  considerable  extent.  In 
New  York  State  they  did,  in  fact,  under  the  law  as  it  was  until  this  year  pay  taxes 
upon  every  thing  that  they  owned,  in  this  respect  differing  from  almost  all  of 
their  fellow  citizens. 

These  corporations  have  no  privileges  of  money-making  value  not  shared  by 
every  other  person.  They  may  receive  deposits,  so  may  individuals.  They  may 
be  appointed  trustees,  executors,  administrators,  and  guardians ;  so  may  indi- 
viduals. They  cannot  escape  taxation  upon  any  of  their  property  because  it  is  all 
exposed  to  the  Assessor;  individuals  can  escape  it  because  their  property  is  not 
and  cannot  be  thus  exposed. 

Some  of  these  corporations  fail;  more  of  them  succeed.  They  succeed  be- 
cause they  are  bound  up  with  the  business  of  prosperous  communities.  Some  are 
more  successful  than  others,  as  is  true  of  communities.  This  is  because  in  the 
case  of  both  individuals  and  corporations  greater  opportunities  come  to  one  than 
to  another,  and  above  all  because  with  one  man  or  corporation  there  is  more 
brain  and  energy  than  with  the  other. 

The  community  gains  immensely  from  this  gathering  together  of  scattered 
capital.  In  its  own  interest  it  should  take  care  to  treat  it  justly  and  equably,  if 
not  liberally. 

A  short  intermission  was  here  taken  to  permit  a  photograph  of  the  Assem- 
blage to  be  taken,  after  which  the  conference  reassembled. 

The  Chairman:  Gentlemen,  we  now  have  a  paper  which  is  in  line  with 
the  general  subject  we  have  been  having  this  afternoon,  by  Mr.  Allen  Ripley 
Foote,  of  Chicago. 

TAXATION  OF  PUBLIC  SERVICE  CORPORATIONS.  -^ 

BY  ALLEN  RIPLEY  FOOTE. 


FUNDAMENTAL  PROPOSITIONS. 

1.  All  delegations  of  the  right  to  exercise  the  power  of  taxation  by  the  people 
to  the  State,  and  by  the  State  to  any  political  division,  should  require  a  strict  ac- 
counting for  the  methods  and  the  results  of  exercising  this  sovereign  power. 

2.  No  subject  should  be  taxed  by  more  than  one  taxing  body  or  political  di- 
vision. 

3.  The  subjects  of  taxation  assigned  to  the  exclusive  use  of  the  State,  or  of 
a  political  division,  should  be  those  with  which  it  is  best  able  to  deal  intelligently 
and  justly. 

4.  Taxation  for  the  purpose  of  revenue  should  deal  with  property  not  persons. 


56  THE   NATIONAL   CIVIC   FEDERATION. 

5.  Taxation  for  the  purposes  of  regulating  protection  for  health,  life  and 
property,  and  for  the  suppression  of  evils,  should  deal  with  persons  not  property. 

6.  Property  devoted  to  a  public  use  should  not  be  taxed. 

7.  The  property  of  public  service  corporations  is  devoted  to  a  public  use. 

A   FUNDAMENTAL   ERROR. 

A  fundamental  error  has  been  made  in  dealing  with  public  service  corpora- 
tions on  the  assumption  that  they  are  engaged  in  a  private  instead  of  a  public 
business.  In  attempting  to  correct  this  error  we  will  be  compelled  to  realize 
that  the  problem  of  taxation  is  only  a  part,  and  relatively  an  exceedingly  small 
part,  of  the  larger  problem  of  regulating  the  extent,  efficiency  and  charges  for 
services  rendered  by  public  service  corporations.  The  taxation  problem  cannot 
be  correctly  settled  until  this  error  is  corrected. 

The  error  of  dealing  with  public  service  corporations  on  the  assumption 
that  they  are  doing  a  private  instead  of  a  public  business  is  responsible : 

1.  For  all  increase  in  investment  and  costs  due  to  dividing  the  business  on  a 
competitive  basis  instead  of  combining  it  as  a  monopoly  as  is  done  in  the  case  of 
all  pubHc  businesses. 

2.  For  capitalizing  the  full  cost  of  public  service  improvements  instead  of  de- 
creasing the  capitalization  by  securing  a  part  of  it  from  special  improvement  as- 
sessments, thus  socializing  a  part  of  the  increment  in  value  created  by  the  im- 
provement, as  is  done  in  the  case  of  other  improvements  of  public  rights  of  way. 

3.  For  permitting  the  entire  increment  in  value  caused  by  such  public  im- 
provements to  enrich  owners  of  private  property,  and  allowing  them  to  charge 
damages,  but  never  assessing  them  for  benefits,  on  account  of  the  improvements ; 
also  for  relieving  general  taxation  by  amounts  collected  from  public  service  cor- 
porations as  compensation  for  improving  the  right  of  way,  and  for  license  fees 
and  taxes  upon  property  and  franchises  devoted  to  a  public  use. 

4.  For  unjust  discriminations,  secret  rebates  and  favoritism,  giving  benefits 
to  one  class  of  users  not  enjoyed  by  others. 

5.  For  arbitrary  rates  established  in  ignorance  of  and  without  being  regulated 
by  the  cost  of  service. 

All  of  these  results  are  the  reverse  of  what  should  be  realized  from  rec- 
ognizing the  business  done  by  public  service  corporations  as  a  public  business, 
their  property  being  devoted  to  a  public  use,  their  organization,  executive 
management  and  capital  being  employed  as  the  agent  of  the  public,  thereby 
the  better  to  promote  the  general  welfare. 

The  existing  situation  is  as  though  a  municipality  had  granted  franchises 
to  the  county,  the  State,  and  the  United  States  to  perform  the  postal  service 
of  the  city;  had  charged  each  competitor  full  price  for  a  site  for  a  post 
office  building  and  then  required  them  to  pay  damages  to  abutting  property 
owners  for  erecting  the  building  and  to  pay  compensation  for  the  privilege  of 
placing  letter  boxes  in  convenient  localities  for  the  people;  also  an  annual  tax 
upon  the  property  and  franchises  for  permitting  their  letter  carriers  to  distrib- 
ute and  collect  the  people's  mail.  This  is  not  all.  It  is  as  though  the  business 
of  these  competitors  had  been  declared  to  be  a  private  business,  their  accounts 
private  accounts,  the  dependence  of  the  public  for  fair  treatment  being  upon 
the  under-bidding  of  each  by  others  in  their  effort  to  secure  business,  each 
competitor  being  at  liberty  to  make  discrimination  between  customers  of  the 
same  class,  to  enter  into  secret  rebate  agreements  in  order  to  retain  customers, 
and  to  fix  prices  as  high  as  the  traffic  would  bear  or  competitors  would  permit, 


NATIONAL   CONFERENCE   ON   TAXATION.  57 

the  compensation  of  each  competitor  being  all  that  could  be  made  out  of  the 
business. 

When  competitors  find  a  community  of  interests  in  having  all  they  can 
make  out  of  the  business,  combination  for  the  purpose  of  securing  the  benefits 
of  economies  accruing  from  monopoly  management  is  inevitable.  They  then 
enter  politics  for  the  purpose  of  getting  prices  for  services  fixed  by  municipal 
council,  or  State  Legislature,  in  ignorance  of  and  without  regulation  by  the 
cost  of  the  service,  and  for  the  purpose  of  fighting  down  taxation.  They 
prefer,  however,  to  have  all  that  can  be  made  out  of  the  business  with  prices 
so  fixed  and  with  taxation,  even  with  a  franchise  tax,  to  having  their  business 
declared  to  be  a  public  business,  their  property  devoted  to  a  public  use  not 
subject  to  taxation,  their  accounts  kept  as  public  accounts,  and  their  charges 
determined  by  cost  plus  interest  and  a  reasonable  profit  on  an  actual  investment. 

It  is  clear  from  this  imaginary  illustration,  every  feature  of  which  is  the 
exemplification  of  existing  facts  all  over  this  country,  that  the  problem  to  be 
solved  is  vastly  greater  and  far  more  important  than  the  problem  of  how 
public  service  coroporations  should  be  taxed,  and  that  the  taxation  problem 
cannot  be  solved  until  the  larger  problem  is  correctly  settled. 

INCREMENTS   OF  VALUE. 

During  the  past  fifty  years  the  increment  of  values  due  to  improvements 
made  by  public  service  corporations  have  been  enormous.  No  reliable  estimate 
of  them  has  ever  been  made.  A  complete  statement  of  them  would  so  far 
exceed  the  entire  market  value  of  all  outstanding  securities  of  public  service 
corporations  as  to  cause  the  most  daring  robber  of  them  all  to  stand  humiliated 
by  the  exposure  of  his  moderation.  Such  an  exhibit  would  forever  silence  the 
charge  that  corporations  have  been  given  valuable  franchises  for  which  the 
people  have  received  no  consideration. 

Increment  of  values  is  disseminated  among  property  owners,  and  for  this 
reason  does  not  attract  attention.  The  gains  of  corporations  are  concentrated, 
they  can  be  seen  and  counted,  and  for  this  reason  attract  attention  and  excite 
antagonism.  Those  who  have  grown  rich  through  increased  values  of  prop- 
erty induced  by  the  improvements  made  by  public  service  corporations  are  the 
beneficiaries  of  a  system  made  respectable  by  custom  and  the  consent  of  society 
for  ages.  Their  investments  are  all  capitalized  on  the  basis  of  earning  power, 
and  as  values  have  been  marked  up  from  decade  to  decade,  many  times  oftener, 
few  have  been  found  wise  and  courageous  enough  to  denounce  them  as  rob- 
bers and  their  increased  values  as  watered  stock.  Only  men  with  brain  power 
and  enterprise  are  denounced  as  public  enemies  who  have  created  the  condi- 
tions that  have  made  increases  of  values  possible,  while  supplying  the  people 
with  constantly  improving  services  at  decreasing  prices.  No  franchise  granted 
to  a  corporation  has  ever  had  one  dollar  of  value  in  it,  until  it  has  been  made 
valuable  by  the  rendering  of  a  service  on  terms  that  benefited  the  people.  In 
the  great  game  of  grab,  played  in  accordance  with  the  rules  of  competition, 
increments  of  value,  however  caused,  have  been  freely  taken  by  all  who  were 
in  position  to  make  legal  claim  to  them.  Sagacious  minds  are  seeing  that 
competition  is  a  destructive  power  and  are  trying  to  displace  it  with  a  com- 
munity of  interests  for  mutual  protection  and  benefit. 

The  largest  community  of  interests  is  that  of  the  whole  people,  which  can 
be  properly  served  only  by  having  all  public  services  managed  as  public  busi- 
ness monopolies,   the  accounts  kept   as  public  accounts,   prices   made   uniform 


58  THE   NATIONAL   CIVIC   FEDERATION. 

for  all  users  of  the  same  class,  discriminations  and  secret  rebates  made  unlaw- 
ful, and  financed  on  a  scale  of  charges  calculated,  as  a  general  result,  to  produce 
only  sufficient  income  to  fully  pay  the  true  and  entire  costs  of  ownership  and 
operation  plus  interest  and  a  reasonable  profit  on  a  bona  fide  investment.  Under 
the  monopoly  rule  of  charging  as  little  as  costs  will  permit,  instead  of  all  the 
traffic  will  bear,  as  required  by  the  competitive  rule,  reason  and  opportunity  for 
taxation  will  be  eliminated.  The  property  will  be  devoted  to  a  public  use,  and 
the  public  will  be  in  enjoyment  of  all  possible  benefits  through  improved  service 
at  lowest  self-sustaining  price. 

REGULATION    OF    TAXATION     OF    CORPORATIONS. 

If  charges  for  public  services  were  always  called  taxes  instead  of  "prices," 
the  people  would  quickly  understand  that  the  important  question  is  not  how 
to  regulate  the  taxation  of  public  service  corporations,  but  how  to  regulate 
taxation  BY  corporations.  The  people  would  then  understand  the  full  force 
and  meaning  of  the  first  fundamental  proposition  governing  the  subject  of 
taxation  and  would  see  that  authority  to  collect  a  tax,  a  price,  for  a  public 
service  should  always  require  a  strict  accounting  of  the  methods  and  the  results 
■of  exercising  such  power.  This  leads  directly  to  public  accounting  and  prepares 
the  way  for  the  application  of  the  principle  that  charges  shall  be  determined 
hy  cost  plus  interest  and  a  reasonable  profit.  Under  such  an  accounting  system 
actual  investments  only  will  be  taken  into  consideration  and  the  question  of 
corporation  securities,  either  as  to  their  volume  or  market  value,  will  cease  to 
"be  of  public  interest.  Instead  of  illogical  and  ineffectual  attempts  to  equaHze 
conditions  between  corporations  and  the  people  by  taxing  franchises  made 
valuable  by  granting  authority  to  collect  excessive  taxes  (prices),  contracts  can 
"be  negotiated  with  corporations  to  supply  service  "at  a  price  so  low  that  no 
more  than  a  fair  return  would  be  realized  on  the  capital  actually  invested," 
thus  realizing  in  a  scientific  way  the  identical  condition  former  State  Senator 
John  Ford  lays  down  in  his  article  in  the  North  American  Review  for  May, 
1901,  as  the  limit  of  extortion  to  be  practiced  by  the  public  upon  public  service 
■corporations.     In  this  article  Senator  Ford  also  says : 

"Public  franchises  of  an  incalculable  value  have  been  given  away  to  pri- 
vate individuals  and  corporations.  Were  the  cities  in  full  enjoyment  of  the 
revenues  derived  from  these  sources  alone,  municipal  tax  rates  would  be  cut 
nearly  in  two,  and  the  whole  population — for  it  is  the  rent-payer,  not  the  land- 
lord, who  is  the  real  tax-payer — would  be  proportionately  benefited." 

It  is  regrettable  that  the  legislative  sponsor  for  a  franchise  tax  law  should 
be  the  author  of  this  unverified  statement,  and  that  it  should  be  given  credence 
by  publication  in  the  leading  magazine  of  the  country.  The  "incalculable  value" 
of  franchises  is  in  the  right  to  collect  excessive  taxes  (prices)  for  services 
rendered.  By  legalizing  this  value  and  classing  it  as  real  estate  for  the  pur- 
pose of  taxation,  the  Ford  franchise  law  has  created  an  obstruction  to  the 
reduction  of  prices.  Instead  of  reducing  prices  to  "no  more  than  a  fair  return 
on  capital  actually  invested,"  this  law  creates  a  partnership  between  the  State 
and  the  corporation  by  taking  a  small  per  cent  of  the  capitalized  value  of  earn- 
ing power  for  the  State  and  giving  the  corporation  all  that  is  left.  Instead 
of  seeking  to  destroy  the  corporations'  power  to  collect  the  extortionate  taxes 
(prices)  of  which  such  loud  complaint  is  made,  this  franchise  tax  law  accepts 
a  trifling  rebate  for  the  State  and  continues  the  iniquity. 


NATIONAL  CONFERENCE  ON  TAXATION. 


59 


Cutting  the  municipal  tax  rates  nearly  in  two,  by  securing  the  revenues 
•derived  from  public  service  franchises,  as  Senator  Ford  declares,  can  never  be 
done  by  maintaining  prices,  as  his  franchise  tax  law  will  do. 

A  correct  regulation  of  taxation  by  public  service  corporations  will  reduce 
prices  to  the  lowest  self-sustaining  level,  which  is  the  only  way  in  which  the 
whole  population  can  be  benefited. 

TAXATION    AND   PRICES. 

In  discussing  this  subject  before  the  American  Economic  Associatfon, 
December  27th-29th,  1900,  the  following  opinions  were  expressed: 

Prof.  W.  Z.  Ripley:  *T  would  emphasize  this  fact,  that  the  taxation  ques- 
tion is  only  a  part  and  a  mere  branch  of  the  question  of  control  of  capital  of 
public    corporations." 

Prof.  Edzvin  R.  A.  Seligman:  *'No  lasting  reform  of  corporation  taxation 
can  take  place  unless  it  goes  hand  in  hand  with  a  reform  of  the  whole  system 
•of  taxation.  You  cannot  expect  to  have  a  good  system  of  taxation  of  corpora- 
tions, unless  you  have  a  good  system  of  taxation  in  general.  Owing  to  the 
fact  that  a  comprehensive  reform  of  taxation  is  almost  impossible  in  any  State 
of  this  country  because  of  the  diverse  interests  of  the  farmer  and  the  indus- 
trialist, it  has  become  necessary  to  approach  the  problem  piecemeal;  but  if  you 
approach  the  question  piecemeal,  there  is  always  danger  of  getting  into  con- 
iusion  worse  confounded.  Not  until  the  results  of  scientific  research  have 
sifted  down  to  the  community  through  popularizing  of  conclusions,  will  the 
time  be  ripe  for  action." 

Prof.  John  Henry  Gray:  "It  is  possible  to  confine  ourselves  so  closely  to 
a  single  element  in  the  problem,  as  to  lose  sight  of  its  wider  and  more  serious 
bearings.  It  is  not  primarily  a  question  of  what  is  right  between  a  street  car 
company  and  its  patrons,  but  rather  what  relation  should  exist  between  these 
two  in  the  public  interest.  I  know  of  scarcely  an  attempt  to  tax  a  company  of 
this  kind  that  has  not  led  to  social  conditions  which  necessitated  a  public 
expenditure  greater  than  the  amount  of  the  tax.  I  am  not  sure  of  the  effects 
of  the  incidence  of  such  a  tax  on  the  ultimate  prosperity  of  the  company,  but 
am  sure  that  such  attempts  usually  result  in  limiting  the  extent  and  diminish- 
ing the  efficiency  of  the  service,  and  in  intensifying  the  evils  of  slums  in  our 
large  cities.  The  man  who  pays  too  high  a  fare  may  not  be  wronged.  But 
the  man  who  is  by  such  tax  entirely  deprived  of  the  service,  and  the  public 
which  must  raise  large  sums  apart  from  this  tax  to  check  and  abolish  the 
slums,  are  greatly  injured.  These  services  are  all  too  essential  to  social  wel- 
fare to  justify  us  in  checking  or  crippling  them  by  attempts  to  make  them 
contribute  directly  to  the  public  treasury.  The  minimum  demand  of  the  pub- 
lice  ought  to  be  a  fare  low  enough  to  make  the  service  self-sustaining  without 
any  special  taxation." 

Prof.  E.  J.  James:  "Even  if  the  business  were  in  the  hands  of  the  State 
itself,  it  would  be  reasonable  to  tax  the  plant  in  the  same  way  in  which  it 
might  be  taxed  if  in  the  hands  of  a  private  owner  not  subject  to  supervision 
as  to  charges  or  quality  of  service.  The  tax-payer  who  does  not  use  gas  may 
very  reasonably  demand  that  those  who  do,  pay  enough  for  it  to  afford  a 
profit  equivalent  to  the  taxes  which  the  city  would  have  collected  from  a  sim- 
ilar gas  plant  in  private  hands.  Unless  this  be  done,  the  sum  must  come  out 
of  other  tax-payers,  and  the  non-consumers  of  gas  must,  as  tax-payers,  con- 
tribute their  share,  which  virtualy  goes  to  furnish  cheaper  gas  to  consumers." 


6o  THE   NATIONAL   CIVIC    FEDERATION. 

Mr.  James  B.  Dill:  'The  payment  for  a  franchise  should  not  be  fixed  im 
full  at  the  time  of  its  granting;  there  should  be  an  annual  charge,  determined 
not  on  the  primary  charge  to  the  grantee,  but  upon  the  value  of  a  franchise  to 
its  user.  For  practical  reasons  this  annual  charge  should  be  fixed  according 
to  a  definite  method  of  calculation.  A  rule  for  solving  the  problem  should  be 
established  and  no  State  official  should  be  allowed  to  work  out  the  result  in 
private,  but  only  on  the  public  blackboard,  where  it  will  be  possible  to  examine 
his  mathematical  processes  as  well  as  his  results.  Then  the  same  method  that 
is  applied  to  corporation  No.  i  will  have  to  be  applied  to  corporation  No.  2." 

Mr.  Arthur  J.  Eddy:  "It  is  illogical  to  regulate  on  the  one  hand  the 
character  of  the  service  performed  and  the  charges  therefor,  and  on  the  other 
hand  to  tax  the  income  resulting  from  the  charges  so  established.  The  imposi- 
tion of  a  tax  is  an  assumption  that  the  charges  of  quasi-public  corporations 
for  services  are  higher  than  is  reasonably  warranted  by  at  least  the  amount  of 
the  tax.  It  is  probably  true,  that  the  charges  of  most  quasi-public  corporations 
are  based  upon  the  necessities  of  security  holders,  and  the  exigencies  of  cor- 
rupt or  extravagant  financing,  rather  than  upon  the  cost  and  character  of  the 
service  performed,  and  it  is  because  the  charges  are  so  determined  that  taxa- 
tion, together  with  much  adverse  legislation,  is  excused;  but  the  mere  fact 
that  the  public  is  overcharged  in  order  to  protect  securities  extravagantly  or 
corruptly  issued,  is  no  excuse  for  making  a  bad  condition  worse  by  imposing 
taxes  contrary  to  sound  principles  of  economy  and  finance.  Over  capitalization 
and  extravagance  in  cost  of  construction  and  management  are  not  to  be  cor- 
rected by  imposition  of  taxes.  If  it  be  assumed  that  service  and  charges  have 
been  wisely  regulated  through  the  intervention  of  the  public,  the  imposition  of 
any  additional  charge  in  the  way  of  a  tax  or  a  license  fee  is  illogical  and  detri- 
mental to  the  interests  of  the  public.  In  the  case  of  street  railroads,  for 
instance,  the  requirements  are,  good  service  and  low  fares.  The  better  the 
service  and  the  lower  the  fares,  the  more  efficiently  do  street  railways  perform 
their  functions.  If  street  railways  can  pay  a  tax  imposed,  then  without  the  tax 
they  could  give  either  better  service  or  lower  fares.  There  is  no  sound  reason^ 
why  the  public  should  pay  to  street  railway  companies,  in  the  shape  of  high- 
rates  for  transportation,  the  amount  of  the  tax  which  is  to  be  returned  by 
the  corporation.  Certainly  the  practical  end  to  be  sought  is  the  lowest  possi- 
ble fare  consistent  with  economic  construction,  prudent  management  and  good' 
service,  fares  to  be  adjusted  from  time  to  time  according  to  changing  conditions;, 
every  additional  expense,  such  as  taxes,  license  and  franchise  fees,  are  direct 
obstacles  to  the  attainment  of  the  best  conceivable  practical  conditions,  and  are 
to  be  excused  only  upon  the  assumption  heretofore  suggested,  viz. :  That  con- 
struction, management  and  financing  are  of  a  character  so  extravagant  and 
corrupt  that  the  people  are  entitled  to  a  share  in  the  plunder  to  the  extent  of 
the  tax  imposed." 

Mr.  Lawsons  Piirdy,  in  a  recent  article  under  the  title  of  "The  Burdens  of 
Local  Taxation  and  Who  Bears  Them,"  says: 

"When  prices  charged  by  public  service  corporations  are  so  fixed  by  statute 
*as  to  yield  a  legally  limited  profit  in  excess  of  cost,  computed  upon  actual 
investment,  regardless  of  outstanding  securities,  any  tax  will  be  an  element  of 
cost  and  will  therefore  be  paid  by  the  user  of  the  service.  Under  this  condition 
choice  can  be  made  between  taxation  and  high  prices  for  service,  or  no  taxa- 
tion and  low  prices  for  service.  To  carry  out  this  system,  all  the  accounts  of 
the  corporation  necessary  to  determine  cost  must  be  kept  as  public  accounts  ir> 


NATIONAL   CONFERENCE   ON   TAXATION.  6i 

-form  prescribed  by  the  State,  and  audited  by  State  authority.  If  there  should 
be  any  profit  in  excess  of  the  legal  limit  it  can  be  absorbed  in  whole  or  in  part 
by  a  graded  tax  on  gross  receipts." 

THE    SOLUTION    OF    THE    PROBLEM. 

The  franchise  que.stion, 

The  rate  of  charge  question, 

The  discrimination  and  secret  rebate  question, 

The  capitalization  question, 

The  taxation  question, 
all  have  an  identical  solution.  This  solution  affects  the  interests  of  every  per- 
son engaged  in  agriculture,  mining,  manufacturing  and  commerce;  it  is  in  the 
direct  interest  and  should  have  the  undivided  support  of  the  whole  people.  It 
will  fix  rates  as  low  as  they  can  be  maintained  and  provide  a  good  service  on 
a  self-sustaining  basis.  It  will  make  discriminations  and  secret  rebates  impos- 
sible. It  will  permit  the  earning  of  interest  and  a  reasonable  profit  on  an 
actual  investment  only.  It  will  enable  the  people  to  know  the  true  cost  of 
service  and  to  determine  their  own  policy  regarding  taxation.  If  they  relinquish 
all  taxation  they  will  be  compensated  by  better  service  or  lower  prices,  or  both. 
If  they  wish  to  tax  net  income,  gross  income,  or  the  value  of  the  investment 
it  will  furnish  the  facts  upon  which  such  action  can  be  based  intelligently.  It 
is  ^s  easy  to  solve  the  entire  problem  as  it  is  to  solve  any  one  of  its  branches 
In  fact,  none  of  the  branches  of  the  problem  can  be  correctly  solved  except 
through  the  solution  of  all  of  them. 

In  view  of  these  facts  I  affirm: 

1.  That  public  service  corporations  are  the  agents  of  the  public  engaged 
in  transacting  a  public  business. 

2.  That  all  of  their  accounts,  necessary  for  the  determination  of  the  true 
and  entire  costs  of  the  services  rendered  by  them,  should  be  kept  as  public 
accounts  in  form  prescribed  by  State  or  national  authority,  and  should  be  aud- 
ited by  such  authority. 

3.  That  charges  for  services  should  be  determined  by  cost  plus  interest 
and  a  reasonable  profit  calculated  on  an  actual  investment  only. 

4.  That  discrimination  in  charges  between  users  of  the  same  class,  and 
secret  rebates,  should  be  declared  unlawful. 

5.  That  each  political  division  should  decide  for  itself,  having  a  knowledge 
of  all  the  facts  gained  through  public  accounting,  between  low  prices  and  no 
taxation  and  higher  prices  with  taxation,  and  should  assess  the  tax,  in  case 
taxation  is  approved,  in  the  maner  best  suited  to  its  local  conditions. 

6.  That  it  is  inexpedient  to  attempt  to  reform  laws  for  the  taxation  of 
public  service  corporations  without  solving  the  whole  problem  of  public  ser- 
vice regulation  by  transferring  the  industry  from  a  private  to  a  public  under- 
taking. 

7.  These  affirmations  include  all  public  service  industries,  municipal,  State, 
and   national. 

The  Chairman:  We  are  honored  by  the  presence  to-day  of  the  chief 
executive  of  the  State  of  Indiana.  We  would  all  be  glad  to  hear  a  word  from 
Governor  Mount,  of  Indiana,  whom  I  now  have  the  pleasure  of  introducing. 

Governor  Mount:  Mr.  Chairman,  in  the  discussions  that  I  have  listened 
to  in  the  few  minutes  that  I  have  been  present,  it  seems  as  though  Indiana  has 
already  been  heard  from  to  an  extent  to  provoke  further  discussion.     Indiana 


62  THE   NATIONAL   CIVIC   FEDERATION. 

is  here.  You  have  not  heard  from  all  of  it.  There  is  more  in  reserve.  Prob- 
ably an  explanation,  not  an  apology  for  the  late  appearance  of  a  larger  part 
of  our  delegation,  is  that  we  have  been  so  cordially  received  and  so  hospitably 
entertained,  and  the  entertainment  so  seductive  that  we  could  not  break  away^ 
from  it.  We  were  taken  in  charge  by  the  managers  of  the  Exposition  to  assist  ia 
entertaining  the  Vice-President,  and  that  explains  the  delay  in  our  getting 
here.  But  if  it  shall  meet  the  good  wishes  of  your  presiding  officer  and  the 
Conference,  there  is  more  of  Indiana  to  be  heard  from  to-morrow.  We  pride 
ourselves  on  our  system  of  taxation  in  Indiana,  although  it  may  not  be  in 
harmony  with  the  views  of  other  States;  but  it  is  a  very  interesting  question 
to  us,  just  now,  and  is  enlisting  the  attention  of  all  classes  of  our  citizens.  We 
are  having  good  results  from  it.  We  are  gradually  reducing  our  State  debt, 
and  I  hope  at  the  close  of  my  term  to  look  back  with  pride  and  say  that  Indiana 
has  no  State  debt  but  can  be  extinguished.  I  thank  you,  gentlemen,  for  your 
cordial  reception. 

The  Chairman:  Gentlemen,  the  general  subjects  presented  by  the  three- 
papers  you  have  heard  this  afternoon,  are  open  for  discussion  now. 

If  there  is  no  further  discussion  the  Chair  will  state  that  the  program 
for  to-morrow  morning  at  10:30  will  be  first  the  taxation  of  mortgages.  A 
paper  will  be  read  upon  that  subject  and  will  be  open  for  discussion.  Then 
the  subject  of  inheritance  taxes  and  the  subject  of  local  option  in  taxation  and 
the  separation  of  State  and  local  revenues. 

The  Chair  will  state  that  Senator  Sloan,  of  New  York,  is  appointed  a 
member  of  the  Committee  on  Publication  in  place  of  Senator  Davis. 

Mr.  Stotsenburg:  In  line  with  the  suggestion  of  Prof.  Seligman,  that 
nothing  can  be  accomplished  by  a  conference  which  simply  meets  for  discus- 
sion, no  matter  how  good  the  views  of  those  composing  that  conference  mav 
be,  unless  there  is  some  united  action  by  the  several  States  of  the  Union,  in 
view  of  that  fact,  which  is  undeniable,  I  desire  to  present  a  resolution  for  the 
purpose  of  having  it  referred  either  to  the  Committee  on  Organization  or  to 
another  committee,  which  will  give  us  an  opportunity  to  bring  before  the  prop- 
erly constituted  bodies  which  act  upon  taxation,  the  actual  thought  of  this 
Conference.  Whatever  we  may  say  here,  no  matter  if  it  is  presented  in  a 
pubHc  news  paper,  is  like  water  spilt  upon  the  ground  unless  it  is  brought  to 
the  attention  of  that  body  which  in  each  State  has  the  right  to  dictate  what  the 
system  of  taxation  shall  be.  If  any  delegate  to  his  Conference  has  a  plan 
which  comes  nearest  to  suiting  the  minds  of  the  members  of  the  different  gen- 
eral assembles  of  the  different  States,  that  plan  ought  to  be  presented  to  one 
of  these  committees.  The  gentleman  from  Ohio  presented  a  plan  this  morning 
which  struck  me  with  a  great  deal  of  force.  That  was  a  plan  to  divorce  the 
taxation  of  the  State  from  that  of  the  county.  He  presented  a  plan  by  which 
State  taxation  could  be  taken  care  of  and  County  taxation  could  be  taken  care 
of,  but  he  failed  to  present  that  which  will  take  care  of  the  system  of  taxation 
in  the  imperium  itnperio.  Such  a  one,  for  instance,  as  described  by  Professor 
Seligman,  which  has  one  thousand  times  increased  the  valuation  of  property 
and  assessment.  For  my  part,  I  agree  with  what  our  executive  has  said,  that 
the  State  of  Indiana  has  a  plan  of  taxation  which  with  one  exception  is  the  very 
best  we  could  have,  and  that  exception  is  the  one  dwelt  upon  by  the  gentleman 
from  Delaware,  which  is  really  the  storm  center,  which  brings  this  Conference 
here,  which  creates  discussion,  which  fills  the  public  mind  now  with  distrust, 
the  question  of  keeping  up  taxation,  of  constant  levies  more  than  are  necessary 


NATIONAL   CONFERENCE   ON   TAXATION.  63 

for  the  best  government  of  the  people  in  the  simplest  and  most  economical  form. 
If  you  can  only  get  at  this  one  point,  to  limit  in  some  way  the  measure  of  taxa- 
tion, State,  county  and  municipal,  there  will  be  no  necessity  for  this  question  of 
discussing  what  shall  be  taxed.     Therefore  I  present  this  resolution : 

Resolved.  That  all  plans  suggested  by  any  delegate  for  the  improvement  of 
the  system  of  taxation  of  the  several  States  of  the  Union  shall  be  referred  to 
the  Committee  on  Organization;  the  said  committee  shall  report  the  same  back 
to  the  Conference  with  its  opinion  thereon,  and  if  the  opinion  of  the  com- 
mittee and  of  the  Conference  shall  be  in  favor  of  such  plan  the  report  as 
approved  shall  then  be  presented  by  the  delegates  from  each  State  to  the  Gen- 
eral Assembly  of  the  State  for  its  information  and  consideration. 

I  present  this  resolution  for  the  consideration  of  the  Conference. 

The  Chairman  :  The  resolution  is  before  the  Conference.  What  action 
shall  be  taken  in  reference  to  it? 

On  motion  duly  seconded  the  resolution  was  referred  to  the  Committee 
on   Organization. 

On  motion  of  Mr.  Seligman  the  Conference  adjourned  until  Friday 
morning  at  half  past  ten  o'clock. 


PROCEEDINGS  OF  FRIDAY  MORNING,  MAY  24,  1901. 

The  Chairman  (Senator  Garfield  in  the  chair)  called  the  Conference  to 
order  at  half  past  ten  o'clock. 

The  Chairman  :  Gentlemen  of  the  Conference,  I  have  been  requested  to 
preside  at  this  session.  Owing  to  the  interest  that  has  been  taken  in  this  Con- 
ference and  the  number  of  able  papers  that  have  been  presented,  it  has  been 
necessary  to  prolong  the  Conference  beyond  to-day,  and  tOrmorrow  forenoon 
there  will  be  a  number  of  special  papers  read.  We  hope  that  the  delegates 
will  be  able  to  remain  over  and  attend  until  the  end  of  the  Conference,  which 
will  be  to-morrow  forenoon.  This  morning  the  session  will  be  devoted  to  the 
discussion  of  four  separate  papers.  The  first  one  is  by  Mr.  Judson,  of  Missouri, 
the  question  being  the  taxation  of  mortgages.  The  Chair  wishes  to  announce 
that  by  reason  of  the  number  of  papers  that  are  to  be  read  we  will  attempt  to 
strictly  confine  the  discussion  to  the  five-minute  rule  and  endeavor  to  finish 
with  four  papers  this  morning.  I  take  great  pleasure  of  introducing  Mr.  Jud- 
son, of  Missouri,  who  will  address  us  on  the  subject  of  the  taxation  of  mortgages. 

TAXATION   OF   MORTGAGES. 

BY   FREDERICK    N.    JUDSON. 


The  chaotic  condition  of  American  taxation  as  the  result  of  the  now  con- 
fessed failure  of  the  general  property  tax  cannot  be  better  illustrated  than  in 
the  experience  of  the  States  in  the  taxation  of  mortgaged  real  estate,  especially 
the  recent  experience  in  that  matter  of  the  States  of  California  and  Missouri. 
It  is  the  theory  of  the  general  property  tax  that  all  property,  tangible  and 
intangible,  is  subject  to  taxation.  Lands  within  the  limits  of  a  State  are 
subject  to  be  listed  by  the  holder  with  other  personal  property  for  taxation 
upon  these  lands  are  represented  by  notes  or  other  securities,  and  these  are 


64  THE   NATIONAL   CIVIC   FEDERATION. 

subject  to  be  listed  by  the  holder  with  other  personal  property  for  taxation 
at  his  domicile.  Where  the  landowner  is  taxed  upon  the  full  value  of  his 
land  without  deduction  for  mortgage,  as  is  the  usual  rule,  and  the  mortgages 
are  taxed  as  personal  property  at  the  domicile  of  the  holder,  the  effect  is 
double  taxation;  that  is,  the  taxation  of  both  of  the  property  at  its  full  value 
and  of  the  credit  whose  value  is  based  upon  the  same  property.  Thus,  in  the 
State  of  Missouri,  prior  to  the  recent  constitutional  amendment,  all  the  lands 
in  the  State  were  taxed  without  deduction  for  mortgages,  and  the  citizen  was 
required  to  list  for  taxation  all  his  mortgages,  whether  secured  by  land  in  the 
State  or  elsewhere,  and  whether  the  securities  were  in  the  State  or  not,  with- 
out deduction  for  debt  in  the  assessment  of  either  real  or  personal  property. 

In  some  States  debts,  including  mortgage  debts,  are  allowed  to  be  deducted 
from  taxable  credits,  and  in  New  York  debts  are  allowed  to  be  deducted  from 
the  general  return  of  personal  property,  and  in  a  few  cases  these  debts  so 
allowed  to  be  deducted  are  limited  to  those  due  residents  of  the  State. 

But  while  this  is  the  theory  of  the  general  property  tax,  it  has  failed  to 
be  effective  in  the  taxation  of  mortgages  as  personal  property,  as  the  taxation 
of  all  intangible  property  when  dependent  upon  self-listing  for  appraisement 
is  ineffective.  This  failure  of  the  general  property  tax  to  reach  intangible 
personal  property  is  too  notorious  to  need  extended  comment,  and  the  experi- 
ence of  Missouri  is  the  same  as  that  of  other  States.  With  the  exception  of 
what  is  secured  from  estates  in  the  Probate  Court  and  Trustees,  mortgages 
have  been  practically  untaxed.  This  failure  of  the  tax  is  more  complete  in 
our  large  cities  than  in  rural  communities.  In  the  city  of  St.  Louis,  about 
forty-five  per  cent  of  the  entire  personal  tax  is  collected  from  estates  in  pro- 
bate; that  is,  from  widows  and  orphans;  and  it  may  be  assumed  that  prac- 
tically all  of  the  tax  collected  upon  mortgage  notes  in  our  cities  is  collected 
from  such  estates  and  trust  estates. 

Thus,  in  the  practical  working  of  the  general  property  tax,  the  entire  burden 
of  taxation  upon  the  mortgaged  property  is  thrown  upon  the  mortgagor,  and 
the  sense  of  injustice  which  he  feels  in  being  required  to  pay  a  tax  on  the  full 
assessed  value  of  his  land  when  the  value  to  him  is  reduced  by  the  amount  of 
the  mortgage,  is  intensified  by  the  recognized  fact  that  the  mortgage  as  a  rule 
escapes  taxation. 

When  the  State  of  California  adopted  its  new  constitution  in  1879,  this 
prevailing  general  property  tax  had  been  modified  by  the  decision  of  the 
Supreme  Court  of  that  State  to  the  effect  that  mortgages  were  not  taxable,  the 
court  holding  that  the  taxation  of  the  mortgage  interest  to  the  mortgagee  after 
taxing  the  full  value  of  the  mortgaged  land  to  the  mortgagor,  would  be  double 
taxation.  Thus,  in  California  mortgages  were  legally  exempt,  while  in  other 
States  they  were,  for  the  most  part,  practically  exempt.  But  this  legal  exemp- 
tion of  mortgages  from  taxation  created  a  demand  for  a  change  which  would 
compel  the  mortgagee  to  share  with  the  mortgagor  the  burden  of  taxation  upon 
the  land  in  which  they  both  had  an  interest.  Thereupon,  the  Constitutional 
Convention  adopted  a  plan,  which  was  ratified  by  the  people,  and  has  ever 
since  been  known  as  the  California  plan,  whereby  the  mortgage  interest  and 
the  equity  of  the  mortgagor  were  separately  taxed  as  distinct  interests  in  the 
land.  This  plan  was  indorsed  by  economists  of  high  authority  as  consistent 
with  economic  justice,  and  was  adopted,  not  for  the  purpose  of  preventing 
double  taxation,  as  the  decision  of  the  Supreme  Court  exempting  mortgages 
from    taxation    had    rendered    this    unnecessary,    but    in    order   to    compel    the 


NATIONAL   CONFERENCE   ON   TAXATION.  65 

mortgagee  to  share  the  burden  of  taxation  when  he  was  logically  and  prac- 
tically, though  not  legally,  a  co-proprietor  in  the  land. 

Oregon  adopted  the  same  system,  (but  has  since  repealed  it)  and  in  a 
case  going  up  from  that  State,  it  was  held  by  the  Supreme  Court  of  the  United 
States  that  this  separate  taxation  of  the  mortgage  interest,  whether  owned  by 
a  resident  or  a  non-resident,  was  within  the  lawful  power  of  the  State.^  The 
court  said  that  the  State  could,  for  the  purposes  of  taxation,  treat  the  mort- 
gage debt  as  personal  property,  to  be  taxed  like  other  choses  in  action  to  the 
creditor  at  his  domicile,  or  treat  the  mortgaged  interest  in  the  land  as  real 
estate  to  be  taxed  to  him  like  other  property  at  its  situs. 

But  this  system,  though  its  justice  was  indorsed  by  economists  and  its 
legality  affirmed  by  the  courts,  has  proved  wholly  ineffective  in  relieving  the 
mortgagor  from  the  burden  of  taxation.  The  tax  thus  imposed  upon  the 
mortgagee  has  been  shifted  back  upon  the  mortgagor,  notwithstanding  the 
express  prohibition  in  the  constitution  of  any  contract  whereby  the  mortgagor 
was  obliged  to  pay  the  tax  of  the  mortgagee.  The  testimony  is  universal  that 
this  prohibition  has  proved  ineffective.  The  Supreme  Court  of  California  has 
sustained  agreements  whereby  the  mortgagee  agrees  to  reduce  the  interest 
stipulated  for  in  the  event  the  debtor  pays  the  taxes,  thus  giving  the  debtor 
the  "option"  of  paying  the  taxes  without  being  "obligated"  to  pay  them.  So 
universal  is  this  shifting  of  the  burden,  that  printed  blanks  are  used  embody- 
ing these  agreements.  It  was  said  by  the  Supreme  Court  of  California  in 
answer  to  the  argument  that  its  ruling  would  defeat  the  purpose  of  the  consti- 
tution, that  the  Legislature  could  have  made  the  prohibition  effective  by 
reducing  the  lawful  rate  of  interest,  and  this  it  had  failed  to  do. 

it  seems  also  that  it  is  a  common  practice  in  California  for  the  holder  of 
mortgaged  property  to  have  his  land  assessed  as  free  from  encumbrances.  The 
interest  upon  the  loan  is  large  enough  to  cover  the  probable  tax  and  the 
borrower  is  credited  with  the  amount  of  the  actual  tax  when  he  exhibits  to  the 
lender  his  receipted  tax  bill.  We  have  the  high  authority  of  Professor  Plehn '  for 
saying  that  the  necessity  for  resorting  to  these  devices  for  shifting  the  tax  has 
had  a  tendency  to  increase  the  rate  of  interest  and  to  divert  capital  from  the 
State.  A  gentleman  of  that  State  who  has  had  large  experience  as  a  borrower 
writes  me:  "It  is  difficult  to  explain  to  non-residents  that  this  is  a  tax  that 
does  not  tax". 

Michigan,  in  1891,  attempted  a  direct  tax  upon  mortgages  as  interests  in 
the  land,  but  the  act  was  repealed  after  remaining  in  fofce  only  two  years.* 

New  Jersey  permits  the  amount  of  a  mortgage  to  be  deducted  from  the 
taxable  value  of  the  land,  if  the  deduction  is  claimed  by  the  owner  and  the 
mortgage  is  taxed  against  the  mortgagee.  No  means  are  provided  for  collect- 
ing the  tax  upon  the  mortgage  of  a  non-resident  holder,  and  in  certain  parts 
of  the  State,  as  will  be  hereafter  seen,  the  parties  are  permitted  to  contract 
against  the  claiming  of  such  deduction. 

The  State  of  Missouri,  in  November,  1900,  notwithstanding  the  failure  of 
the  California  experiment  to  relieve  the  mortgagor,  adopted  by  a  constitu- 
tional amendment  the  same  system,  the  prohibition  against  the  shifting  of  the 
tax  being  a  literal  copy  of  the  California  provision — an  interesting  illustration 


^  Savings  Society  v.  Multnomah  County,  169  U.  S.,  421. 
'  See  Yale  Review,  May,  1899. 

^  I  am  informed  that  a  direct  mortgage  tax  in  some  form  was  recently 
re-enacted. 


66  THE   NATIONAL   CIVIC   FEDERATION. 

of  the  anomalous  condition  of  American  taxation.  Although  there  was  little 
public  discussion  on  the  subject  before  the  election,  and  there  was  an  active 
campaign  in  behalf  of  other  constitutional  amendments  submitted  at  the  same 
time,  there  can  be  no  doubt  that  the  public  discontent  with  the  failure  of  the 
taxing  system  in  reaching  mortgage  notes  was  a  potent  cause  in  securing  the 
adoption.  The  position  of  Missouri  differed  from  that  of  California,  in  that 
mortgages  were  subject  to  taxation  as  personal  property  at  the  domicile  of 
the  holder,  the  State  thus  exercising  its  utmost  power  of  taxation,  regardless 
of  the  resulting  double  taxation.  But  so  far  as  the  taxation  of  mortgages  was 
concerned,  the  effort  to  tax  had  failed  in  Missouri,  as  everywhere  else.*  The 
purpose,  therefore,  of  the  amendment  in  Missouri,  was  not  only,  as  in  Califor- 
nia, to  relieve  the  mortgagor,  but  also  to  reach  property  which  had  thereto- 
fore evaded  taxation  and  to  remove  the  anomaly  of  double  taxation,  with  the 
inequalities  resulting  from  the  failure  of  the  existing  system.  In  Missouri, 
as  in  California,  the  mortgages  of  railroad  and  other  quasi  public  corporations 
are  excepted  from  the  operation  of  the  amendment.' 

The  adoption  of  the  Missouri  amendment  in  November  last  was  so  unex- 
pected that  it  caused  at  first  a  panic  among  money  lenders,  and  a  few  foreign 
companies  withdrew  from  the  State,  refusing  to  renew  their  loans.  But  others 
soon  discovered  the  successful  expedients  adopted  in  California  for  shifting 
the  tax  back  upon  the  mortgagor,  and  the  loaning  business  has  now  adjusted 
itself  to  these  conditions.  The  General  Assembly  of  the  State  refused  to  reduce 
the  authorized  rate  of  interest  from  eight  per  cent  to  six  per  cent,  though 
importuned  so  to  do  for  the  very  purpose  of  preventing  the  success  of  this 
method  of  shifting  the  tax.  The  usual  method  is  to  take  with  the  interest 
notes  at  the  agreed  rate,  additional  notes  for  probable  amount  of  taxes,  paya- 
ble annually  until  the  maturity  of  the  principal,  with  a  collateral  agreement 
for  the  cancellation  of  these  notes  upon  the  production  by  the  mortgagor  of 
receipts  for  all  taxes  upon  the  land. 

The  act  of  the  General  Assembly  of  Missouri  carrying  this  amendment 
into  effect  specifically  declares  the  purpose  of  "avoiding  double  taxation"  and 
provides  that  mortgages  which  are  subject  to  be  taxed  as  interests  in  property 
mortgaged  shall  not  be  included  in  the  personal  property  subject  to  taxation. 
Equality  of  taxation  had  been  declared  in  the  constitutional  amendment,  which 
said  that  the  interests  of  the  owner  of  the  mortgage  as  well  as  that  of  the 
mortgagor  should  be  assessed  on  terms  equally  fair  and  just.  This  was  in 
recognition  of  the  practice  prevailing  in  Missouri,  as  elsewhere,  of  assessing 
property  at  a  fraction  of  its  value.  The  act  of  the  General  Assembly  declares 
that  property  subject  to  a  mortgage  and  ^he  total  of  all  interests  therein 
shall  not  be  assessed  at  any  greater  or  higher  valuation  than  that  at  which 
other  property  of  the  same  value  is  assessed ;  and  that  it  is  not  the  intention 
or  purpose  of  the  act  to  cause  or  permit  property  which  is  subject  to  a  mort- 
gage to  be  assessed  or  taxed  to  any  greater  extent  or  in  any  higher  proportion 
than  if  it  were  not  subject  to  a  mortgage.  The  rate  of  assessment  prevailing 
in  the  State  at  large  is  from  thirty  to  forty  per  cent  of  the  actual  value.  Thus 
if  property  worth  twenty  thousand  dollars  is  subject  to  a  mortgage  of  ten 
thousand  dollars  and  the  rate  of  assessment  is  thirty  per  cent,  the  mortgage 
interest  would  be  taxed  at  three  thousand  dollars  to  the  mortgagee,  and  the 


*See  "Law  and  Practice  of  Taxation  in  Missouri",  by  present  writer,  pp. 
215,  282. 

'  This  exception  has  proved  fatal  to  the  amendment  in  Missouri;  infra  p.  note. 


NATIONAL   CONFERENCE   ON    TAXATION.  67 

equity  at  three  thousand  dollars  to  the  mortgagor.  It  frequently  happens  that 
property  is  mortgaged  in  excess  of  its  assessed  value.  In  such  cases,  the  assessed 
value  must  be  apportioned  between  the  mortgagor  and  the  mortgagee  on  the 
same  proportionate  basis  of  value.  The  act  went  further,  and  gave  the  Circuit 
Courts  of  the  State  jurisdiction  over  appeals  from  the  assessing  boards  in  any 
case  where  they  were  charged  with  violation  of  any  of  the  provisions  of  the 
act,  this  being  the  only  case  in  the  State  where  equality  of  assessment  is  secured 
by  the  judicial  power. 

It  is  now  but  little  over  six  months  since  the  adoption  of  the  amendment 
and  but  a  few  weeks  since  the  legislative  act  above  referred  to  went  into 
effect,  and  as  the  annual  assessment  of  property  for  taxation  is  made  on  June 
I  of  each  year,  the  first  assessment  under  the  new  system  is  not  yet  made. 
Mortgages  existing  at  the  date  of  the  adoption  of  the  amendment  which  pro- 
vided, as  they  invariably  do.  for  the  payment  of  taxes  by  the  mortgagor,  are 
of  course  not  affected  by  the  change.  But  it  may  be  said  from  all  reports  that 
in  new  mortgages  or  in  the  renewals  of  maturing  mortgages,  the  mortgagor 
still  bears,  as  before,  the  full  burden  of  taxation  upon  his  land  by  an  increase 
of  interest  above  the  normal  rate  or  by  a  direct  shifting  of  the  tax  in  the 
method  above  explained. 

The  anomaly  of  double  taxation,  however,  will  be  removed.  Notes  secured 
by  mortgages  upon  lands  and  estates  can  no  longer  be  taxed  as  personal  prop- 
erty, and  the  discriminations  and  inequalities  incident  to  the  ineffective  attempt 
to  enforce  the  taxation  of  such  securities  will  cease.  In  great  part  such  secur- 
ities escaped  taxation  before,  from  the  inability  of  the  Assessor  to  reach  them, 
and  this  practical  exemption  is  now  legalized.  To  what  extent  this  legal 
exemption  will  reduce  the  revenues  of  the  State  remains  to  be  seen. 

But  an  unforseen  result  has  been  developed  in  the  application  of  this 
system  which  will  complicate  results,  and  if  it  had  been  foreseen  it  probably 
would  have  prevented  its  adoption.  A  large  proportion  of  the  mortgages  held 
in  Missouri  are  held  by  savings  banks  and  trust  companies,  which  are  taxed 
in  Missouri,  not  upon  their  property,  but  upon  their  capital  stock  and  surplus, 
their  real  estate  being  deducted  from  such  valuation.  The  Attorney-General 
of  the  State  has  recently  advised  that  the  mortgage  loans  of  such  institutions 
must  be  treated  as  real  estate,  and  that  to  tax  them  upon  such  loans  in  addi- 
tion to  their  capital  stock  would  be  double  taxation,  which  it  was  the  purpose 
of  the  amendment  to  avoid.  It  necessarily  follows  that  the  public  revenues 
of  the  State  will  suffer  loss  to  the  extent  of  these  mortgage  loans,  as  the 
mortgagor  can  only  be  taxed  upon  his  actual  interest  in  the  land — that  is,  upon 
his  actual  equity — whether  his  mortgage  is  held  by  a  bank  or  an  individual. 
This  discriminates  against  the  individual  lenders,  who  are  compelled  to  pro- 
vide by  contract  for  the  shifting  of  the  tax,  while  the  companies  referred  to 
are  relieved  from  such  necessity,  and  also  discriminates  against  the  borrowers 
from  such  individual  lenders.  This  discrimination  will  be  a  strong  argument 
for  the  repeal  of  the  amendment,  and  if  a  serious  loss  in  the  public  revenues 
results  from  this  cause  as  well  as  from  the  exemption  of  mortgages  from  taxa- 
tion as  personal  property,  it  is  not  improbable  that  Missouri's  experience  in 
this  class  of  taxation  will  only  last  until  the  next  general  election  in  November, 
1902.     The  people  will  then  vote  upon  a  resubmission  of  this  amendment,  this 


68  THE   NATIONAL   CIVIC    FEDERATION. 

resubmission  being  one  of  the  first  acts  of  the  last  General  Assembly,  a  pro- 
ceeding unprecedented  in  the  history  of  constitutional  amendments  in  the  State.' 

The  General  Assembly  in  its  act  enforcing  the  constitutional  amendment 
already  referred  to,  seems  to  have  anticipated  this  contingency,  as  it  expressly 
provides  that  a  repeal  of  the  constitutional  amendment  or  any  legal  suspension 
of  its  force  and  action,  shall  effect  a  suspension  of  this  act,  and  this  act  shall 
he  in  force  only  so  long  as  said  constitutional  provision  is  in  force. 

This  discrimination  in  favor  of  the  companies  named  may  complicate  the 
t:onditions  bearing  upon  the  economic  shifting  of  the  tax  in  other  mortgage 
loans,  and  will  probably  lead  to  giving  the  companies  named  a  monopoly  of 
such  loans.  It  it  also  true  that  in  the  rural  districts,  where  the  mortgages  are 
now  taxed  as  personal  property,  they  are  taxed  as  a  rule  at  their  full  face 
value,  one  hundred  per  cent.  Thus,  if  the  money-lender  is  assessed  now  on  a 
five-thousand-dollar  mortgage  loaned  in  the  county,  he  would  pay  taxes  on  the 
full  face  value,  and  if  he  lives  in  the  county  seat  or  other  town,  at  the  municipal 
tax  rate,  making  his  probable  tax  seventy-five  to  one  hundred  dollars.  Under 
the  new  system,  assuming  that  his  mortgage  is  assessed  at  thirty  per  cent, 
the  usual  rate  on  real  estate  in  the  country,  he  will  pay  taxes  at  the  county 
rate,  as  a  rule  considerably  lower  than  in  the  county  seat,  reducing  his  taxes 
thus  from,  say,  seventy-five  or  one  hundred  dollars  to,  say,  fifteen  or  twenty 
dollars.  In  this  connection,  also,  it  should  be  stated  that  the  tax  upon  notes 
and  mortgages  is  collected  far  more  generally  in  the  country  than  in  the  cities. 
Or,  in  other  words,  the  failure  is  far  less  complete.  Thus  in  1898  the  total 
valuation   in   Missouri,   exclusive   of  railroad   property,    was   $959,296,907,   and 


*  The  experience  of  Missouri  has  ended  sooner  than  suggested  above. 
Since  the  above  was  written,  the  Supreme  Court  of  the  State,  on  June  18,  1901, 
in  Russel  vs.  Croy,  three  of  the  seven  judges  dissenting,  decided  that  the  consti- 
tutional amendment  is  void,  on  the  ground  that  the  exception  of  the  property 
of  railroad  and  other  quasi  public  corporation  created  inequality  of  taxation 
by  an  unreasonable  classification,  in  violation  of  the  fourteenth  amendment  of 
the  Constitution  of  the  United  States.  This  decision  by  the  State  Court,  being 
favorable  to  the  right  claimed  under  the  Federal  Constitution,  is  final  and  ends 
Missouri's  experiment.  The  Globe-Dewocrat  of  St.  Louis  of  June  19,  1901,  com- 
menting on  the  decision  says : 

"As  a  matter  of  fact,  mortgagees  took  measures  to  maintain  their  interests 
as  before,  while  mortgagors  and  real  estate  men  were  greatly  inconvenienced. 
The  amendment  proved  itself  to  be  practically  inoperative  and  a  nuisance,  before 
at  was  decided  to  be  invalid  ". 

The  same  point  was  raised  in  California  by  a  railroad  company,  R.  R.  Co. 
TS.  Board  of  Equalization,  60  Cal.  35,  but  was  overruled.  It  was  sustained,  how- 
ever, by  Mr.  Justice  Field  and  Sawyer.  J.,  in  the  United  States  Circuit  Court, 
18  Fed.  Rep.  385.  It  was  suggested  by  Justice  Field,  (p.  414) »  that  the 
constitutional  amendment  could  be  sustained  by  eliminating  the  exception.  The 
judgment  was  affirmed  in  the  Supreme  Court  of  the  United  States,  118  U.  S.  394, 
on  another  ground,  and  the  point  in  question  has  never  been  decided  by  that 
Court. 

Judge  Valliant,  in  delivering  the  opinion  of  the  Missouri  Supreme  Court, 
commenting  upon  the  cessation  of  the  litigation  in  California,  after  quoting  in 
extenso  from  Professor  Plehn's  article  as  to  the  successful  evasion  in  California, 
says:  "It  may  be,  therefore,  that  the  evasion  of  the  law  has  been  found  to 
be  so  much  easier  than  contesting  its  validity,  that  the  legal  warfare  has  ceased 
and  the  patient  borrower  bears  the  burden  as  .of  old.  We  do  not  know  of 
another  State  that  has  copied  this  feature  of  the  California  law,  and  if,  as  indi- 
cated in  the  above  quotation,  the  conflicting  interests  there  have  made  peace 
on  terms  that  practically  annul  the  law,  the  fact  may  account  for  the  absence 
of  other  decisions  on  the  question". 


NATIONAL   CONFERENCE   ON   TAXATION.  69 

the  total  value  of  money,  notes  and  bonds  (including  mortgages)  was  $62,781,- 
806.  But  of  this  latter  sum  $54,421,192  was  collected  outside  of  the  city  of 
St.  Louis,  Jackson  County  (Kansas  City)  and  Buchanan  County  (St.  Joseph), 
the  great  bulk  of  the  urban  population  of  the  State  being  in  these  three  cities. 
In  other  words,  the  percentage  of  money,  notes  and  bonds  to  the  total  valua- 
tion in  the  State  outside  of  these  urban  communities  was  loj^  per  cent,  while 
in  those  three  cities  and  adjacent  counties  the  percentage  was  1.89  per  cent. 
Thus  it  is  literally  true  that  with  this  class  of  wealth,  as  has  been  often  said, 
the  more  it  increases  the  less  taxes  it  pays.  In  some  counties  of  the  State,  the 
percentage  of  money,  notes  and  bonds  to  the  total  valuation  reaches  as  high 
as  23  per  cent,  while  in  the  city  of  St.  Louis  it  is  only  1.36  per  cent. 

The  more  distinctively  rural  the  population,  the  larger  the  per  cent  of 
money,  notes  and  bonds  to  the  total  valuation ;  and  it  is  also  true  that  the 
smaller  the  community  where  the  loan  is  made  and  the  mortgaged  property  is 
situated,  the  harder  it  is  for  the  individual  lender  to  hide  his  mortgage. 

In  New  York  it  was  recently  proposed  to  levy  a  State  tax  of  one-half  of 
one  per  cent  upon  all  mortgages,  with  exemption  when  paid  from  all  local 
taxation ;  but  the  effort  was  defeated.  Such  a  reduced  tax  rate  would  not  be 
admissible  in  States  where  the  constitutions  prohibit  any  discrimination  in 
the  tax  rate  between  different  classes  of  property. 

This  experience  of  California  and  Missouri  shows  clearly  that  this  prob- 
lem in  taxation  is  not  academic,  but  is  severely  practical.  It  seems  just  that 
the  mortgagee  should  share  with  the  mortgagor  the  burden  of  taxation  upon 
the  land  in  which  they  both  had  interests;  and  the  failure  is  only  another 
proof  that  it  is  idle  to  attempt  equality  in  taxation  unless  we  can  make  the 
system  effective.  But  while  this  remedy  has  proven  ineffective,  it  is  none  the 
less  true  that  the  condition  of  double  and  discriminating  taxation,  such  as 
prevailed  in  Missouri  which  it  was  sought  to  remedy,  had  proven  intolerable. 
The  inevitable  conclusion  is  that  land  should  be  taxed  without  deduction  for 
mortgage  loans,  and  that  no  attempt  should  be  made  to  tax  mortgages,  or 
any  form  of  intangible  personal  property,  for  the  obvious  reason  that  the  tax 
on  such  property  cannot  be  made  effective.  The  holder  of  real  estate  does 
receive  benefit  from  the  free  competition  of  capital,  in  that  he  can  borrow  at 
a  lower  rate  of  interest.  This  is  the  experience  of  Massachusetts,  where  mort- 
gages are  virtually  exempt  from  taxation,  with  a  resulting  tendency  to  lower 
rates  of  interest  on  mortgage  loans  through  the  attraction  of  foreign  capital.' 
The  holder  of  real  estate  expects  to  receive  a  normal  income,  say  three  to  five 
per  cent  net,  on  his  property,  after  paying  taxes.  But  the  unfortunate  holder 
of  mortgages  or  other  personal  securities,  when  assessed,  is  compelled  to  pay 
taxes  out  of  his  three  to  five  per  cent  income.  This  is  an  income  tax  in  effect 
of  from  forty  to  sixty-six  per  cent.  The  report  that  a  forty  per  cent  income 
tax  had  been  levied  in  Cuba  under  the  Spanish  rule  aroused  the  just  indigna- 
tion of  the  American  people,  yet  a  tax  equaling,  even  exceeding,  that  is  col- 
lected under  our  system  from  the  estates  of  widows  and  orphans  in  our  pro- 
bate courts.  This  practical  working  of  a  tax  upon  mortgages  was  forcibly 
illustrated  by  an  instance  which  came  to  my  knowledge  in  St.  Louis.  A  boy, 
made  a  helpless  cripple  in  a  railroad  accident,  and  recovering  damages  of 
$5,000,  was  fortunate  in  having  an  exceptionally  efficient  trustee,  who  suc- 
ceeded in  loaning  this  fund  upon  a  mortgage  at  six  per  cent,  yielding  $300  a 


'  Report  of  Massachusetts  Tax  Commission,  1897,  pp.  ;;i6  and  40. 


70  THE   NATIONAL   CIVIC    FEDERATION. 

year.  The  vigilance  of  the  Assessor  discovered  the  cripple's  fund,  and  it  is 
now  paying  a  tax  of  two  per  cent  on  the  full  amount,  making  an  income  tax 
of  thirty-three  and  one-third  per  cent.  But  this  six  per  cent  was  exceptional 
and  is  continued  at  the  risk  of  hazarding  the  principal.  When  reduced  to  five 
per  cent,  the  tax  will  be  forty  per  cent  of  the  income  and  when  reduced  to 
four  per  cent  it  will  be  fifty  per  cent  of  the  income. 

It  is  not  within  the  scope  of  this  paper  to  discuss  how  the  wealth  invested 
in  mortgages"  and  other  personal  securities  should  be  taxed.  But  whatever 
substitute  is  adopted  for  the  direct  general  property  tax  upon  such  securities, 
which  is  thus  shown  to  be  ineffective,  this  much  is  clear,  that  it  is  the  very 
beginning  of  any  tax  reform  that  all  self-assessment  and  inquisitorial  process 
should  be  abolished,  and  that  it  is  the  first  requisite  of  any  rational  system 
of  taxation  that  the  Assessor  should  only  tax  what  he  can  see  and  value. 

The  taxation  of  mortgages  in  any  State  must  be  considered  with  reference 
to  the  interstate  phase  of  the  question — i.  c,  our  dual  form  of  government — 
and  the  facility  for  the  removal  of  capital  and  residence  from  one  State  to 
another.  It  was  a  homely  but  a  very  practical  maxim  of  Mr.  Ensley,  of  Ten- 
nessee, to  which  our  lawmakers  are  compelled  to  pay  heed  :*  "Never  tax  any- 
thing that  will  be  of  value  to  your  State,  that  can  or  would  run  away  or  that 
can  or  would  come  to  you".  Experience  has  shown  that  money  and  credits 
may  be  concealed  and  loaning  capital  withdrawn  from  a  State,  while  land 
cannot  be  concealed  or  removed.  We  now  have  corporation-inviting  States, 
and  it  is  probable  that  we  shall  soon  have  States  inviting  business  and  capital, 
and  even  the  residence  of  wealthy  men  through  liberal  tax  laws.  The  Governor 
of  Vermont  recently  recommended  to  the  Legislature  of  that  State,  which  has 
many  attractions  for  summer  homes,  that  towns  should  be  allowed  to  contract 
with  citizens  coming  from  other  States  for  a  certain  amount  of  personal  taxes 
to  be  paid  for  a  period  of  years  in  lieu  of  all  returns  for  taxation.  An  inter- 
esting illustration  of  this  was  found  in  the  experience  of  the  State  of  New 
Jersey  on  this  very  subject  of  the  taxation  of  mortgages,  to  which  the  late 
David  A.  Wells  calls  attention.  ®  The  State  enacted  a  law  authorizing  mort- 
gagors to  claim  deduction  for  mortgages  from  the  value  of  their  property, 
and  authorizing  the  mortgagors  to  pay  the  tax  on  the  mortgages,  deducting 
the  same  from  the  principal  and  interest  and  settling  with  the  mortgagee.  The 
inhabitants  of  the  counties  adjacent  to  the  city  of  New  York,  finding  it  impos- 
sible to  negotiate  loans,  secured  the  passage  of  a  law  exempting  all  mortgages 
upon  lands  in  these  counties  from  taxation  when  in  the  hands  of  any  citizen 
of  such  counties.  Subsequently,  the  constitution  of  the  State  prohibited  such 
discriminating  tax  laws,  and  thereupon  the  Legislature  made  it  lawful  for  the 
owners  of  land  situated  in  these  counties  adjacent  to  New  York,  and  in  certain 
cities  of  the  State,  to  agree  with  their  mortgagees  not  to  apply  for  deduction 
from  the  taxable  value  of  their  lands  on  account  of  their  mortgages,  and  that 
in  case  the  mortgagor  did  claim  deduction  in  violation  of  such  agreement, 
that  then  the  mortgage  should  immediately  become  due,  and  the  tax  paid  by 


'  In  1897  Governor  Stephens  of  Missouri  vetoed  an  act  of  the  General  Assem- 
bly requiring  mortgage  and  other  notes  to  be  stamped  by  the  Assessor  as  a 
condition  of  negotiability,  on  the  ground  that  such  legislation  would  tend  to 
drive  capital  from  the  State  and  thus  increase  the  burdens  of  the  people, 

'  "Theory  and  Practice  of  Taxation,"  p.  479. 


NATIONAL   CONFERENCE   ON    TAXATION. 


71 


the   mortgagee,   with   interest,   added  to  the  principal   of  the   debt   secured   by 
the   mortgage. 

There  is  another  phase  of  this  interstate  relation,  and  that  is  the  attempted 
taxation  by  a  State  of  mortgages  held  by  its  citizens  secured  by  property  in 
other  States  or  countries.  Such  taxation  was  held  by  the  Supreme  Court  of 
the  United  States  to  be  within  the  lawful  power  of  a  State,"  but  it  is  obviously 
repugnant  to  economic  justice,  as  it  is  also  repugnant  to  the  principles  of 
comity  which  should  control  in  interstate  relations  in  taxation.  In  the  nature 
of  things  such  taxation  can  seldom  be  effective,  except  in  the  case  of  estates 
m  probate.  But  the  principle  should  be  clearly  established  as  the  very  begin- 
ning of  any  rational  tax  reform,  that  it  is  double  taxation  for  property  taxed 
in  one  jurisdiction  to  be  subject  to  taxation  in  any  other  jurisdiction  through 
the  security  representing  that  property.  It  is  only  by  the  recognition  of  this 
principle  that  justice  can  be  secured  and  double  taxation  avoided  in  our 
system  of  dual  sovereignties  and  intimate  interstate  business  relations. 

The  Chairman  :     Mr.  Judson's  paper  is  now  open  for  discussion. 

Mr.  West:  Mr.  Chairman,  it  seems  to  me  one  of  the  most  hopeful  signs 
of  the  times  is  the  number  of  lawyers  taking  a  scientific,  economic  interest  in 
the  taxing  of  property.  With  Messrs.  Garfield  and  Howard  members  of  the  Su- 
preme Court  in  their  respective  States,  we  should  no  longer  have  decisions  holding 
that  the  way  to  make  the  tax  on  mortgages  effective  is  by  reducing  the  legal  rate 
of  interest.  I  venture  to  say  that  when  any  of  these  gentlemen  or  others  tak- 
ing a  scientific  interest  in  the  subject  of  taxation  become  members  of  the 
Supreme  Court  of  California,  the  doctrine  there  held  will  receive  a  severe 
shock.  Perhaps  it  may  be  dealt  with  in  the  way  in  which  the  Supreme  Court 
of  the  United  States  in  the  Oregon  case  got  around  the  case  of  the  State  tax 
on  foreign-held  funds.  In  the  matter  of  the  State  tax  on  foreign-held  bonds, 
the  Supreme  Court  had  held  that  the  State  of  Pennsylvania  could  not  tax  rail 
road  bonds  held  outside  of  the  State,  on  two-fold  grounds;  first  that  bonds 
held  outside  of  the  State  were  beyond  the  jurisdiction  of  the  State,  and  sec- 
ondly, that  to  tax  bonds  as  proposed  in  the  law  in  question,  namely  by  requir- 
ing the  tax  to  be  deducted  from  the  interest  payable  on  the  bond,  was  in  vio- 
lation of  the  contract.  The  Supreme  Court  in  the  Oregon  case,  by  regarding 
the  first  part  of  this  decision  as  a  dictum,  has  thrown  the  burden  of  a 
previous  decision  upon  the  second  part,  and  it  would  now  seem  possible  that 
bonds  can  be  taxed  to  the  holders  even  when  they  reside  outside  the  State  in 
which  the  tax  is  levied,  if  some  way  can  be  found  to  collect  the  tax  other  than 
by  infringing  the  obligations  of  the  contract.  That  is  to  say,  the  corporation 
cannot  be  required  to  deduct  the  tax  from  the  interest  payable  upon  the  bonds. 
The  corporation  can  be  required  to  report  the  names  and  addresses  of  the 
bondholders,  and  if  they  can  be  reached  in  some  other  way  it  is  merely  a  matter 
of  less  convenience.  I  should  like  to  ask  Mr.  Judson  if  Oregon  has  gone  back  to 
the  system  of  double  taxation  of  mortgages? 

Mr.  Judson  :  That  I  cannot  say,  Doctor.  My  information  is  that  they  had 
repealed  this  California  system. 

Mr.  West:  Another  legal  point  which  I  would  like  to  refer  to  the  law- 
yers present  is,  whet/lier  in  those  States  where  the  constitution  requires  assess- 
ment of  all  property  at  full  value,  it  would  not  be  possible  to  assess  property 


See  Kirtland  tx  Hotchkiss,  100  U.  S.  499. 


12  THE   NATIONAL   CIVIC   FEDERATION. 

according  to  its  annual  value.  According  to  its  value  as  reckoned  by  its  income 
instead  of  according  to  its  capital  value. 

Mr.  Bates,  of  Ohio:  Mr.  Chairman,  I  desire  to  say  just  one  word  on  this 
subject.  The  remarks  which  have  been  made  in  regard  to  double  taxation  raise 
the  question  to  my  mind  which  we  may  all  well  think  of:  Is  it  really  double 
taxation?  Is  it  not  a  fact  that  the  subject  of  taxation  is  in  reality  the  debt, 
and  that  the  mortgage  security  is  in  reality  an  incident,  the  same  as  an  indorse- 
ment on  a  note?  I  hold  that  that  is  the  correct  theory,  that  the  mortgage 
interest  is  merely  an  incident,  that  the  debt  is  the  property,  and  that  when  you 
tax  the  debt  you  do  not  tax  the  property  the  second  time.  The  mortgage  may 
be  wiped  out,  but  if  the  debt  remains  there  is  the  property.  It  looks  to  me 
as  if  it  came  back,  as  Dr.  West  has  said,  to  this  proposition  in  regard  to  the 
taxation  of  intangible  personal  property  about  which  there  seems  to  be  quite 
a  little  difference  of  opinion  here,  and  that  question  resolves  itself  into  two 
simple  propositions  in  my  mind:  Should  intangible  personal  property,  or 
choses  in  action  be  taxed  as  a  matter  of  right  and  equity?  Should  they  bear 
their  just  proportion  of  the  taxes  which  all  property  should  be  required  to  pay? 
I  think  there  can  be  but  one  answer  to  that  as  a  matter  of  right  and  of  theory, 
that  stocks,  bonds,  notes  and  all  classes  of  intangible  personal  property  should 
theoretically  be  taxed,  that  as  a  matter  of  right  they  should  bear  their  just 
proportion  of  taxation.  The  second  question  which  comes  up  is  a  serious 
problem:  Is  it  practicable?  Can  any  practicable  means  be  suggested  or 
devised  to  tax  this  intangible  personal  property  equitably  so  that  it  will  be 
reached  and  be  made  to  bear  its  just  proportion  in  comparison  with  real  estate 
and  other  classes  of  property?  That  is  the  great  problem.  It  seems  to  me 
that  the  first  one  answers  itself,  that  it  should  be  taxed  if  there  is  any  practic- 
able method.  AH  the  arguments  that  I  have  heard  here,  all  that  I  have  ever 
heard  in  opposition  to  the  taxation  of  intangible  personal  property,  are  that  it 
is  impracticable  to  tax  it.  That  adequate  methods  of  getting  it  taxed  and 
assessed  have  not  yet  been  found.  The  problems  which  arise  in  connection 
with  this  subject  have  not  yet  been  solved.  It  seems  to  me  that  the  question 
for  a  body  like  this  is  to  determine  whether  there  is  any  proper  or  equitable 
method  of  getting  this  intangible  personal  property  to  bear  its  proportion  of 
taxes.  If  we  settle  that  question  in  the  negative  then  let  us  take  up  the  single 
tax  question.  Let  us  wipe  out  all  taxes  on  personal  property  and  adopt  the 
single  tax  method.  If  we  decide  that  there  is  some  reasonably  satisfactory 
method  by  which  this  class  of  property  may  be  taxed,  as  I  for  one  believe  that 
it  is  possible  to  be  taxed,  then  let  us  take  hold  of  that  method  and  let  us  see 
if  we  cannot  compel  that  great  mass  of  property  which  is  now  not  paying  its 
tax,  and  which  is  by  far  the  greatest  part  of  the  property  of  the  country,  to  bear 
its  just  proportion  of  taxation. 

Mr.  Taylor,  of  Indiana :  Mr.  Chairman,  it  seems  to  me  that  some  confu- 
sion might  be  saved  on  this  question  of  taxing  intangible  property  by  a  very 
direct  method.  In  Indiana  the  total  assessed  value  of  all  property  to-day  is 
about  thirteen  hundred  million  dollars.  The  real  estate  of  Indiana  pays  about 
seven  hundred  millions.  The  railroads  and  corporations  pay  on  one  hundred 
fifty  millions,  and  four  hundred  fifty  millions  are  paid  upon  intangible  property 
that  is  talked  about  so  much  here.  We  have  a  very  direct  method,  and  the 
best  I  know  of  in  this  country.  Every  domestic  corporation  in  Indiana  is 
obliged  to  pay  taxes  upon  all  the  property  of  the  corporation.  We  do  not 
look  to  the  stockholders.     Every  domestic  corporation  in  Indiana  by  law  pays 


NATIONAL   CONFERENCE   ON   TAXATION.  73 

the  taxes  for  the  corporation.  The  report  made  by  the  Secretary  to  the  taxing 
officer  gives  a  statement  first  of  the  total  capitaHzation,  the  total  bonds  out- 
standing, the  number  of  shares  in  value,  the  market  value  of  each  share,  if  it 
has  any,  and  if  it  has  not,  the  actual  value  of  each  share  of  stock,  so  that 
every  domestic  corporation  in  the  State  pays  the  taxes  itself  for  all  of  its 
stockholders — every  corporation  except  the  banks.  National  banks  do  not,  for 
the  reason,  a  very  good  one,  that  the  Federal  judiciary  has  said  that  it  cannot 
be  done.  But  we  reach  national  banks  by  exactly  the  same  method  around 
the  corner.  We  say  that  the  bank's  shareholders  shall  pay  the  taxes  upon  all 
the  shares  of  stock  of  the  national  bank,  but  we  say  that  all  of  it  shall  be  paid 
within  the  State  no  matter  where  the  shareholder  lives;  that  if  the  bank  is 
assessed  to  five  hundred  thousand  dollars  of  capitalization  the  shareholders  of 
the  bank  shall  pay  the  tax  upon  five  hundred  thousand  dollars,  and  then  we 
go  on  to  say,  lest  there  might  be  some  unwary  stockholder  living  outside  the 
State,  that  the  cashiers  of  the  bank  shall  retain  out  of  the  dividends  declared 
upon  that  stock,  sufficient  to  pay  all  the  taxes  upon  all  the  shares  of  stock,  and 
no  matter  where  the  stockholders  may  live.  So  that  it  is  the  nimble  sixpence  that 
ever  gets  away  from  the  taxing  officer  in  Indiana  when  it  is  owned  by  a  bank. 
We  have  thus  disposed  of  all  domestic  corporations  and  all  banks,  and  there 
is  nothing  left  but  foreign  corporations  and  interstate  railroads.  We  reach  the 
railroads  by  requiring  them  to  make  a  list  of  the  number  of  shares,  the  capi- 
talization, the  debts,  the  length  of  the  lines  and  many  other  things  that  the 
tax  law  specifics  to  be  reported,  and  the  railroad  corporation  is  to  pay  all  the 
taxes  upon  all  of  its  property,  corporate,  tangible  and  intangible.  We  do  not 
care,  thefore,  where  the  stockholder  lives.  The  corporation  itself  pays  the  tax 
directly  into  the  treasury.  Out  of  thirteen  hundred  million  dollars  we  have  one 
hundred  fifty  million  dollars  personal  property,  intangible  property  that  is 
reached  in  that  way.  There  has  never  been  any  question  about  the  constitu- 
tionality of  any  of  this  legislation.  There  has  never  been  any  doubt  about  the 
propriety  of  it,  and  we  have  had  no  trouble  about  it.  It  seems  to  me  that 
much  of  this  difficulty  and  much  of  this  sentiment  in  favor  of  a  single  tax  has 
grown  up  because  of  the  attempt  to  reach  the  stockholders  instead  of  the  cor- 
poration, which  is  always  come-atable  and  easily  assailable,  afid  never  can  dodge. 

Mr.  Seligm.\n  :  Mr.  Chairman,  I  should  like  to  ask  the  gentleman  who 
has  just  spoken  one  question,  namely:  Whether  in  Indiana,  in  assessing  per- 
sonal property  to  the  individual,  the  individual  is  exempt  on  all  of  the  stocks 
and  bonds  of  domestic  and  foreign  corporations  that  he  owns? 

Mr.  Taylor:  Mr.  Chairman,  the  individual  never  reports  stock  in  any 
domestic  corporation.    If  he  owns  stock  in  a  foreign  corporation  he  is  assessed. 

Mr.   Seligman  :     How  about  bonds  ? 

Mr.  Taylor  :     The  same  way. 

Mr.  Seligman:     He  is  not  assessed? 

Mr.  Taylor:  He  is  not  assessed  on  the  bonds  of  a  domestic  corporation 
because  the  bonds  of  a  domestic  corporation  are  taken  into  account  when  the 
valuation  is  placed  on  the  property,  but  not  the  stock. 

A  Member:  Do  we  understand  the  rate  is  the  same  as  on  all  classes  of 
property  ? 

Mr.  Taylor:  Precisely.  There  are  two  corporations  whose  tangible  prop- 
erty is  worth  more  than  the  stock.  If  the  tangible  property  exceeds  the  value 
of  the  stock  then  the  rate  is  fixed  on  the  tangible  property,  but  if  the  stock 
exceeds  in  value  the  tangible  property,  then  no  account  is  taken  of  the  tangible 


74  THE   NATIONAL   CIVIC    FEDERATION. 

property,  and  the  stock  alone  is  made  the  basis.  Let  me  ilhistrate.  There  are 
corporations  in  our  State  whose  tangible  property  is  worth  a  hundred  thousand 
dollars,  but  who  are  capitalized  at  a  million  dollars,  and  whose  stock  is  worth 
that.  We  assess  on  the  valuation  of  a  million  dollars  and  not  a  hundred  thou- 
sand. That  applies  to  every  conceivable  corporation  in  the  State — railroad, 
pipe-line  companies,  gas  companies,  tank  lines,  fast  freight  companies,  refrig- 
erator line  companies,  fruit  companies  and  everything  of  that  sort. 

Mr.  Crandon,  of  Illinois:     Then  if  the  foreign  stockholder  in  your  State  is 
obliged  to  pay  the  tax  on  this  property,   why  should  not  your  property,   the 
stocks  in  your  domestic  companies  held  elsewhere  be  exampt? 
Mr.  Taylor:     We  do  not  do  that  at  all. 

The  Chairman  :  If  we  are  to  continue  our  program  we  must  confine  our 
discussions  to  the  papers  that  have  been  read.  This  discussion  will  come 
in  under  another  head,  but  the  present  discussion  is  now  upon  the  subject  of 
the  taxation  of  mortgage,  and  the  Chair  suggests  that  it  should  be  deferred  and 
taken  up  in  its  order. 

Mr.  Bailey,  of  West  Virginia :  I  would  like  to  ask  if  there  is  any  exemp- 
tion as  to  mortgages? 

Mr.  Taylor  :  We  have  a  mortgage  exemption.  It  exempts  property  to  the 
extent. of  seven  hundred  dollars,  provided  it  does  not  exceed  half  the  value  of 
the  mortgaged  estate.  As  a  result  we  took  off  twenty-eight  million  dollars  of 
property  in  the  State,  The  man  who  gets  the  exemption  must  state  the  name 
of  the  mortgagee,  his  residence,  the  amount,  etc.  As  a  result  of  that  we  have 
put  on  the  duplicate  thirty-one  million  dollars,  and  gained  three  million  dollars 
by  the  operation. 

Mr.  Matthews,  of  Buffalo,  N.  Y. :  Mr.  Chairman,  I  want  to  ask  in  regard 
to  the  listing  of  property,  if  the  Assessor  presents  to  the  party  owning  the  prop- 
erty a  list  and  he  makes  out  his  own  statement  and  verifies  that  statement  by 
affidavit?  I  know  that  is  the  case  in  many  States,  and  I  would  like  to  inquire 
how  it  is  in  Indiana? 

The  Chairman  :  The  Chair  must  hold  that  the  question  is  out  of  order  at  this 
time.  We  must  confine  ourselves  to  the  discussion  of  this  paper.  Is  there  any 
further  discussion  on  this  subject? 

Mr.  Matthews  :  I  simply  wanted  to  know  how  personal  property  was 
listed. 

The  Chairman  :  That  question  will  come  under  discussion  this  afternoon. 
AVe  must  confine  ourselves  now  to  the  subject  of  the  paper. 

Mr.  Bromhall,  of  Ohio:  Mr.  Chairman,  to  bring  the  question  back  to  the 
subject  of  the  paper,  I  want  to  call  attention  to  what  seems  to  me  to  be  an  over- 
sight in  these  discussions.  We  start  in  all  these  discussions  on  the  basis  of  the 
general  property  tax.  Let  us  not  forget  that  there  are  things  worse  than  the 
general  property  tax.  A  general  property  tax  is  the  growth  of  democratic 
thought  growing  out  of  the  principle  that  every  man  should  contribute  to  the 
support  of  the  State  in  proportion  to  his  ability  to  pay;  in  proportion  to  his 
property  in  the  form  which  it  now  takes.  The  basis  of  the  general  property  tax 
is  the  amount  of  property  a  particular  individual  may  own.  In  the  application 
of  the  principle  of  taxing  all  persons  in  proportion  to  the  amount  of  property 
they  have,  you  carry  out  your  ideal  just  in  the  proportion  that  you  are  able  to 
make  the  individual  who  owns  the  propertj"^  pay.  It  makes  no  difference  whether 
or  not  you  can  enforce  the  taxation  of  intangible  personal  property  if  you  cannot 
make  the  man  who  owns  it  pay.    That  is  the  real  proposition.     When  you  come 


NATIONAL   CONFERENCE   ON   TAXATION.  75 

clown  to  the  question  of  the  taxation  of  mortgages,  and  it  is  conceded  as  so 
lucidly  shown  by  Mr.  Judson,  that  the  man  who  owns  the  mortgage  never  pays 
the  tax,  the  moment  you  attempt  to  enforce  the  mortgage  tax  you  violate  the 
general  principle  of  taxation.     When  the  principle  fails  the  tax  ought  to  fail. 

Therefore,  I  maintain  that  wherever  it  is  shown  that  the  principle  of  the 
general  property  tax  does  not  apply,  that  you  cannot  enforce  it  against  a  given 
piece  of  property,  it  is  time  to  abandon  it.  If  this  Conference  can  find  a  way 
to  assess  intangible  property  it  flies  in  the  face  of  all  human  experience.  I 
challenge  the  experience  and  investigation  of  any  one  present  at  this  meeting 
who  has  read  the  history  of  taxation  to  point  to  a  single  instance  where  any 
government  upon  this  earth,  republic  or  monarchy,  ever  succeeded  in  enforcing 
equitably  and  justly  the  taxation  of  intangible  property,  or,  if  you  please,  the 
taxation  of  any  kind  of  personal  property  which  is  in  the  course  of  exchange. 
I  wait  for  an  answer. 

Mr.  Russell,  of  Delaware:  Mr.  Chairman,  just  a  moment  to  announce  that 
mortgages  are  not  taxed  in  Delaware. 

An  effort  was  made  to  tax  them  under  a  law  that  was  enacted  to  imprison 
every  one  who  resisted  it,  and  we  have  failed  most  signally.  The  Court  in 
banc  within  the  last  ten  days  passed  upon  the  question  of  the  constitutional- 
ity of  the  investment  tax  law  and  decided  that  it  was  unconstitutional  and 
void.  But  even  if  the  Court  had  upheld  the  law,  the  experience  we  had  dur- 
ing the  short  time  it  was  in  operation  proved  conclusively  that  no  tax  could  be 
more  unequal  or  unjust  than  a  tax  on  investment.  The  assessments  were  made 
by  men  of  good  intentions,  and  who  sought  to  place  upon  mortgages  and  upon 
bonds  and  stock  a  fair  valuation,  but  they  were  deceived  by  the  holders  who 
either  gave  them  a  smaller  return  than  they  should  or  else  declined  to  make  any 
return  at  all.  Hence  there  was  collected  for  one  year  only  a  small  sum  of 
money,  much  of  which  was  paid  under  protest,  and  remained  and  still  remains  in 
the  hands  of  the  tax  collectors.  Delaware  offers  you  now  an  opportunity  of  real 
estate  investments  without  any  taxation  of  mortgages.  It  is  not  likely  that  we 
shall  undertake  to  improve  upon  the  law  that  has  just  been  declared  unconstitu- 
tional, for  we  are  now  granting  charters.  You  may  apply  at  a  very  reasonable 
figure.  We  are  getting  all  the  money  that  we  need  for  the  support  of  our 
government.  In  addition,  the  State  is  a  large  holder  of  stock  in  the  local 
hanks.  It  also  holds  securities  in  the  railroads  operating  in  the  State  of  Delaware 
We  have  no  State  tax  that  is  a  burden  upon  real  estate,  or  that  will  be  a  burden 
upon  any  of  the  personalty. 

Just  a  moment  further,  if  I  am  not  trespassing  upon  my  time.  What  is  there 
in  a  mortgage  that  may  be  properly  taxed?  We  must  have  something  that  is 
substantial  and  real.  I  can  see  nothing  there  except  the  privilege  to  the  man 
who  lends  to  secure  his  money,  and  who  has  nothing  coming  out  of  the  mortgage 
except  the  profit  upon  his  money,  and  the  rate  of  his  interest  is  just  exactly  what 
the  demand  for  money  at  the  time  the  loan  is  made  will  give  him.  It  is  purely 
a  commercial  transaction.  I  cannot  see  how  it  is  possible  fairly  and  justly  to  tax 
mortgages. 

Mr.  Rogers,  of  Indiana :  Mr.  Chairman,  as  to  the  question  propounded  by  the 
gentleman,  it  seems  to  me  he  might  very  well  refer  to  the  illustration  given  by 
Mr.  Taylor.  Mr.  Taylor  said  that  in  Indiana  twenty-eight  million  dollars  of 
mortgages  have  been  deducted  from  the  assessment  of  real  property  and  at  the 
same  time  the  owner  is  required  to  give  the  name  of  the  mortgagee,  and  the 
mortgagee  is  easily  found,  and  that  means  thirty-one  million  dollars  has  been 


76  THE   NATIONAL   CIVIC   FEDERATION. 

added  to  the  tax  duplicate.  It  seems  to  me  that  is  a  pretty  good  illustration^ 
although  it  is  not  very  old  and  does  not  go  back  to  any  foreign  country  or 
kingdom.  It  is  right  in  our  own  midst,  but  it  is  a  pretty  good  illustration  where 
mortgages  are  actually  taxed.  The  gentleman  who  spoke  upon  this  subject  a 
moment  ago  presented  a  question  as  to  whether  it  is  right  to  allow  property  of 
this  kind  to  escape.  That  is  the  question  we  are  here  to  discuss.  Is  it  right  that 
a  man  who  has  property  or  who  has  money,  and  it  does  not  make  any  difference,, 
it  seems  to  me,  whether  he  has  a  mortgage  or  whether  he  does  not  have  a 
mortgage,  for  what  you  are  taxing  when  you  are  taxing  a  mortgage,  after  all, 
is  the  debt,  and  the  mortgage  counts  for  nothing.  It  is  the  mere  security.  A 
mortgage  now  is  different  from  what  it  formerly  was  in  nearly  every  State 
in  the  Union.  It  is  not  an  equity  in  real  property,  it  is  simply  a  lien,  and  you  are 
not  taxing  your  property,  you  are  taxing  a  debt.  You  are  taking,  in  other  words, 
a  man's  money,  and  if  his  estate  is  all  in  money  and  the  property  he  gets  is  from 
money,  as  the  gentleman  said,  it  is  the  same  as  if  it  were  real  property  and  all  of 
his  profits  came  from  the  real  property.  What  is  the  difference?  In  the  one  case 
you  tax  what  a  man  owns. 

A  Member:  In  one  case  you  tax  what  a  man  owns  and  in  the  other  you  tax 
what  a  man  owes. 

Mr.  Rogers  :  No,  you  tax  what  a  man  owns.  Do  I  understand  you  to  say  that 
if  you  had  a  hundred  thousand  dollars  you  own  nothing?  If  you  lend  that  to 
your  neighbor,  are  you  a  pauper?  Do  you  have  nothing?  Have  you  not  the 
hundred  thousand  dollars,  or  that  which  stands  for  it  ?  If  yesterday  you  owned  a 
hundred  thousand  dollars  you  would  be  taxed  upon  it,  but  according  to  your 
theory  if  you  loan  it  to-day  you  are  not  taxed  upon  it.  I  say  it  is  a  question  of 
morals  and  a  question  of  right,  and  I  should  like  any  gentleman  on  this  floor  to 
prove  why  a  man  should  not  be  taxed  who  owns  notes  and  bonds  and  mortgages 
just  as  the  man  who  owns  real  estate  is  taxed.  A  man  who  owns  money  to-day 
should  be  taxed  on  his  money,  but  if  he  makes  an  investment  to-morrow  and 
gets  something  back  in  place  of  his  money  I  see  no  reason  why  he  should  be 
taxed  in  one  case  and  not  in  the  other. 

Mr.  Purdy  :  If  all  mortgages  are  taxed,  will  you  be  kind  enough  to  state  on 
whom  the  burden  of  the  tax  falls? 

Mr.  Rogers:  That  is  a  question  that  seems  to  me  purely  theoretical.  As  a 
matter  of  fact  where  they  are  taxed,  as  they  are  taxed  in  Indiana,  it  falls  upon  the 
mortgagee. 

Mr.  Purdy:  Has  it  raised  the  interest  in  Indiana? 

Mr.  Rogers:  It  has  not.  It  seems  to  me,  Mr.  Chairman,  that  here  is  the 
most  vital  thing  that  has  come  up  in  all  the  discussions  of  these  meetings.  It  is 
a  question  of  right.  It  is  a  question  of  morals.  I  would  like  to  ask  this  gentle- 
man a  question.    If  you  do  not  tax  mortgages  would  you  tax  money? 

Mr.  Purdv    No. 

Mr.  Rogers  :    Then  you  would  tax  no  personal  property  ? 

Mr.  Purdy  :   Certainly  not. 

Mr.  Rogers  :  If,  then,  no  personal  property  is  to  be  taxed,  and  real  estate 
alone  is  to  be  taxed,  the  man  who  is  a  millionaire  in  your  community,  because  he 
has  a  million  dollars  in  his  pocket,  pays  nothing  to  run  the  government,  but  the 
man  who  owns  the  real  property  pays  it  all.    Is  not  that  so  ? 

Mr.  Purdy  :   The  millionaire  cannot  keep  his  money  in  his  pocket. 

Mr.  Rogers  :  Suppose  he  puts  it  in  mortgages  ? 

The  Chairman  :   The  gentleman's  time  has  expired. 


NATIONAL   CONFERENCE   ON   TAXATION. 


77 


It  was  moved  and  6i»ronded  that  Mr.  Roger's  lime  be  extended. 

The  Chairman  put  the  question  upon  the  motion,  and  the  same  was 
tinamiously  carried. 

Mr.  Rogers  :  Mr.  Chairman,  this  Convention  is  very  kind.  I  am  looking  for 
information.  I  am  ignorant,  and  I  am  wilHng  to  be  ignorant  for  a  while,  but  I 
want  to  learn  and  I  came  here  to  learn.  The  gentleman  from  Ohio  presented  cer- 
tain propositions.  I  want  to  know  if  I  am  wrong.  Am  I  wrong  when  I  say 
that  the  man  who  has  simply  money  or  stocks  and  pays  nothing  is  not  helping 
to  sustain  the  government?  If  the  tax  all  falls  upon  real  property  is  not  the  man 
who  owns  real  property  the  man  who  is  paying  the  money  to  run  this  govern- 
ment ?    Am  I  wrong  about  that? 

Mr.  Purdy  :   I  think  you  are  wrong. 

A  Member:  Where  do  millionaires  live?  Do  they  not  pay  tax  upon  the 
ground  they  live  upon? 

Mr.  Rogers  :    I  presume  not. 

A  Member:   They  do  pay  a  tax  on  real  estate,  do  they? 

Mr.  Rogers  :  I  presume  they  do  not  pay  a  tax  upon  the  property  they  live 
upon,  if,  as  one  of  the  gentlemen  said,  they  generally  live  in  hotels 

Mr.  Chairman,  the  only  thing  I  desire  to  say  in  answer  to  the  gentleman,  is 
that  I  am  here  as  a  listener,  and  I  would  like  to  listen  to  some  of  these  gentle- 
men who  would  explain  that  question  so  that  I  would  go  away  feeling  that 
it  was  not  a  moral  wrong  to  relieve  the  millionaire  who  has  simply  money  and 
to  tax  the  poor  farmer  or  any  other  person  who  owns  simply  property. 

Mr.  Williams:  I  will  appear  to  say  something  in  reference  lo  the  unfor- 
tunate millionaire.  I,  myself,  personally,  am  not  a  believer  in  taxation  of  so- 
called  intangible  property,  for  the  reason  I  stated  yesterday,  that  there  is  no 
such  thing  in  the  world.  Therefore,  I  desire  to  tell  the  gentleman  from  Indiana 
how  the  millionaire  is  taxed.  The  millionaire  cannot  keep  his  million  dollars  in 
his  pocket.  There  is  no  such  thing.  You  go  now  and  then  down  to  the  bank  and 
see  a  million  dollars  in  money,  but  there  is  no  such  thing  as  a  million  dollars 
in  money  for  the  purposes  of  taxation.  How  has  the  millionaire  got  his 
property?  Assume  he  has  no  real  estate.  Assume  he  has  not  a  dollar.  What 
he  has  got,  as  a  rule,  is  stocks  and  bonds  and  mortgages.  He  usually  has  those 
three  things,  treating  bonds  as  railroad  securities.  The  stocks  and  bonds  abso- 
lutely pay  taxes,  because  it  goes  without  saying  that  if  a  corporation  is  taxed 
on  everything  it  has  got  and  pays  a  fairly  high  franchise  tax  in  addition  to  the 
tax  on  the  property  he  actually  possesses,  the  corporation  of  which  he  is  simply  a 
part  owner  unquestionably  pays  his  taxes  as  far  as  he  owns  the  stocks  and 
bonds.  Stock  is  absolutely  nothing  except,  of  course,  an  undivided  interest  in  the 
property  of  the  corporation.  It  pays  two  taxes,  a  tax  on  its  actual  property,  and 
in  addition  to  that  a  franchise  tax  on  its  gross  earnings  or  whatever  you  may 
choose  to  call  it.  As  to  the  matter  of  a  tax  on  mortgages  I  agree  with  the  gen- 
tleman that  a  mortgage  is  absolutely  nothing  whatever.  It  is  nothing  but  the  debt. 
The  thing  that  requires  to  be  taxed  is  the  debt.  If  I  have  a  hundred  thousand 
dollars  to-day,  and  it  is  taxed,  and  I  convert  it  into  money,  loan  the  money  to 
somebody  else,  and  I  have  not  a  cent  left,  I  should  not  be  taxed  on  that  hundred 
thousand  dollars.  I  do  not  want  to  say  I  am  a  poor  man,  because  I  have  loaned 
a  hundred  thousand  dollars,  but  I  have  given  a  hundred  thousand  dollars  to  that 
man  and  he  has  bought  real  estate  with  it,  and  the  money  has  got  into  real  estate. 
What  I  have  got  is  the  right  to  receive  four  thousand  dollars  a  year. 


78  THE    NATIONAL   CIVIC    FEDERATION. 

A  Member  :  Did  you  not  have  that  also  when  you  had  the  land,  the  right  to- 
receive  the  income  from  the  land?  You  say  now  you  have  the  right  to  receive 
four  thousand  dollars  a  year. 

Mr.  Williams:  No,  I  had  the  actual  property.  If  you  make  anything  out 
of  the  property  so  much  the  better. 

Mr.  Seligman  :  Mr.  Chairman,  it  seems  to  me  that  the  members  of  this  Con- 
ference are  really  not  quite  so  far  apart  as  they  seem  to  be.  I  think  it  is  very 
largely  a  misuse  of  terms,  and  a  little  misunderstanding  of  the  real  question.  I 
for  one  can  sympathize,  and  I  think  every  one  who  looks  at  the  question  from 
the  broad  point  of  view,  can  sympathize  with  these  gentlemen,  especially  with 
those  from  Indiana,  who  have  spoken  to-day  and  who  represent  the  common 
opinion  of  our  democracy,  that  every  man  who  possesses  property  has  a  certain 
obligation  to  share  in  the  burdens  of  his  country.  On  that  we  all  ought  to  agree 
as  a  very  starting  point  of  the  discussion,  whether  it  be  a  discussion  of  mortgages 
specifically,  or  anything  else,  that  every  man  should  pay  according  to  his  ability. 
The  very  practical  question,  however,  is  the  one  raised  by  our  friend  a  moment 
ago,  namely :  Can  we  devise  a  system  of  taxation  which  will  cause  every  man 
who  owns  property  to  pay  taxes  on  his  property?  If  the  gentleman  will  pardon 
me,  I  think  the  experience  of  Indiana  is  precisely  the  same  as  that  of  most  of  the 
other  States.  Most  of  our  States  tax  corporations,  or  many  of  them  do,  as 
Indiana  does.  Most  of  them  exempt  the  stockholder  who  is  already  taxed,  by 
having  the  corporation  assessed,  but  in  Indiana  and  pretty  much  everywhere 
else  throughout  the  country  we  attempt  to  make  the  individual  pay  upon  all  his 
property,  real  and  personal,  tangible  and  intangible,  with  the  possible  exception 
of  stocks  of  corporations.  Everywhere  where  that  has  been  tried,  it  has  worked 
badly,  and  I  venture  to  say  that  if  we  look  into  the  details  of  the  Indiana  system. 
we  shall  find  it  works  just  as  badly  there  as  anywhere  else.  They  may  succeed 
in  getting  a  few  more  mortgages  than  in  other  States,  but  if  you  compare  the 
great  mass  of  the  personalty  in  Indiana,  all  the  money  and  the  bonds  and  the 
mortgages,  I  make  bold  to  say,  without  knowing  anything  about  the  statistics  at 
present,  that  in  Indiana  not  one  tithe  of  the  intangible  personalty  is  assessed  to 
individuals.  In  Indiana,  as  everywhere  else  in  this  country,  the  attempt  to  make 
the  individual  pay  upon  his  personalty  is  a  practical  failure. 

I  do  not,  however,  say  that  as  a  result  we  must  agree  with  some  of  the 
gentlemen  here  to-day,  that  only  real  estate  should  be  taxed.  The  question  is  not 
between  the  taxation  and  the  exemption  of  personal  property.  The  question  is 
between  the  direct  and  the  indirect  taxation  of  personal  property.  We  all  want 
the  individual  to  be  taxed  upon  his  property.  We  all  find  that  under  actual 
conditions  we  cannot  reach  the  individual  directly  upon  his  personal  property, 
although  we  can  reach  the  landowner  directly  upon  his  real  property.  The  con- 
clusion is  that  if  we  desire  to  make  every  man  pay  his  share  so  far  as  it  is 
humanly  possible  to  do  so,  we  must  try  to  reach  indirectly  what  we  cannot  reach 
directly.  The  whole  problem  of  the  reform  of  taxation  in  the  United  States 
to-day  is  how  to  reach  the  owner  of  personal  property  indirectly.  The  indirect 
methods,  some  of  which  were  suggested  yesterday,  and  more  of  which  will 
undoubtedly  be  suggested  to-day,  amount  to  this:  You  cannot  reach  the  indi- 
vidual personal  property  owner  upon  his  mortgages,  because  if  you  attempt  to 
tax  the  mortgage  we  all  know  it  will  be  shifted  to  the  man  who  borrows  the 
money;  that  is,  the  landowner,  and  the  man  who  has  loaned  the  money  will 
simply  be  getting  back  in  a  higher  rate  of  interest  what  he  pays  out  to  the  State 
in  taxes.    While,  therefore,  we  know  that  we  cannot  reach  him  directly  in  that 


NATIONAL   CONFERENCE   ON   TAXATION.  79. 

way,  while  we  know  that  we  cannot  find  his  bonds  and  stocks  and  his  other 
intangible  personalty,  we  do  know  that  some  of  our  States  are  now  beginning  to- 
reach  the  owner  of  personal  property  by  taxing  him  indirectly  at  the  source, 
namely,  by  taxing  the  thing  that  gives  him  the  income  which  has  been  capitalized 
into  his  property,  by  taxing  the  corporation  from  which  he  derives  his  dividends 
and  his  interest.  And  if  that  does  not  suffice,  we  know  that  in  some  of  our 
States  we  also  have  an  inheritance  tax  so  that  if  you  cannot  reach  the  man  while 
he  is  living  you  can,  at  all  events,  reach  the  estate  when  he  is  dead.  If  even 
that  does  not  suffice,  we  know  that  other  schemes  have  been  successfully  tried  in 
many  countries  of  the  world  where  they  have  gone  through  the  very  same  experi- 
ence that  we  have.  For,  gentlemen,  this  is  not,  as  it  seems  to  many  of  you.  a 
new  question  in  the  world.  Every  country  in  Europe,  every  civilised  country 
in  the  world  has  made  at  one  time  or  another  this  attempt  to  secure  the  direct 
taxation  of  the  personal  property  owner;  and  as  a  result  of  a  long  sequence  of 
years,  even  of  centuries,  every  country,  almost  without  exception,  has  abandoned 
the  attempt  to  reach  the  personal  property  owner  directly;  but  they  all  attempt, 
and  many  of  them  succeed  in  the  attempt,  to  reach  the  personal  property  owner 
indirectly.  Therefore,  gentlemen,  I  conclude  with  the  statement  that  we  are 
really  all  at  one  if  we  only  knew  it.  We  all  want  to  tax  the  personal  property 
owner;  but  do  not  let  us  any  longer  continue  the  attempt  to  do  a  thing  which 
means  practical  inequality  of  taxation  between  man  and  man,  and  which  means 
that  we  do  not  achieve  what  we  really  set  out  to  accomplish.  Let  us  endeavor  to 
secure  indirect  taxation  of  personal  property,  not  direct  taxation  of  personal 
property. 

The  Chairman  :  There  are  three  others  papers  to  be  presented  this  morning. 
We  shall  have  ample  opportunity  for  further  discussion  of  this  subject  this 
afternoon,  and  I  shall,  therefore,  call  upon  Mr.  Robert  H.  Whitten,  of  Albany. 
N.  Y.,  who  will  give  us  a  paper  on  the  inheritance  tax  as  a  source  of  State 
revenue. 


THE  INHERITANCE  TAX. 

BY  ROBERT  H.   WHITTEN. 


Inheritance  taxes,  though  imposed  in  various  forms  and  at  various  times  for 
centuries,  are  in  their  present  form  a  modern  development.  They  now  exist  in 
Great  Britain,  France,  Germany,  Switzerland,  Belgium,  Italy,  Russia,  and  other 
European  states,  and  in  Australia,  Canada,  and  the  United  States.  In  the  United 
States,  though  Pennsylvania  imposed  a  collateral  inheritance  tax  of  25^  per  cent 
as  early  as  1826,  it  is  only  within  the  last  ten  or  fifteen  years  that  the  movement 
has  attained  any  great  importance.  New  York  has  probably  exercised  the  great- 
est influence  in  this  development.  In  1885  it  imposed  a  tax  of  5  per  cent  on 
estates  of  $500  going  to  collateral  heirs,  and  in  1891  supplemented  this  with  a 
tax  of  I  per  cent  on  direct  inheritances  of  personal  property  of  $10,000  or  more. 
The  direct  tax  more  than  doubled  the  State's  receipts  from  inheritance  taxes 
and  furnished  a  practical  example  of  the  importance  of  inheritance  as  a  subject 
of  taxation,  that  was  quickly  followed  by  other  States.  At  present  New  York's 
average  annual  receipts  from  this  source  are  about  $2,000,000,  though  for  the 
year  1900  they  amounted  to  over  $4,000,000,  the  increase  being  due  to  receipts 
from  a  single  estate:    a  single  estate  paying  into  the  State  treatury  $1,934,000. 


8o  THE    NATIONAL   CIVIC    FEDERATION. 

During  the  period  1890  to  1895  receipts  from  the  inheritance  tax  throughout  the 
United  States  increased  more  than  twofold,  or  from  $1,886,000  to  $4,016,000;  and 
there  is  no  doubt  but  that  during  the  period  since  1895  the  increase  has  been 
even  more  rapid. 

The  colateral  inheritance  tax  is  now  imposed  by  twenty-seven  States,  namely, 
Arkansas,  California,  Colorado,  Connecticut,  Delaware,  Illinois,  Iowa,  Maine, 
Maryland,  Massachusetts,  Michigan,  Minnesota,  Missouri,  Montana,  Nebraska, 
New  Jersey,  New  York,  Ohio,  North  Carolina,  Pennsylvania,  Tennessee,  Utah, 
Vermont,  Virginia,  Washington,  West  Virginia,  and  Wisconsin;  and  twelve 
of  these  States,  namely,  Colorado,  Connecticut,  Illinois,  Michigan,  Minnesota, 
Montana,  Nebraska,  New  York,  North  Carolina,  Utah,  Washington,  and  Wiscon- 
sin, have  supplemented  this  tax  with  a  tax  on  direct  inheritances.  It  is  thus 
evident  that  the  inheritance  tax  is  rapidly  gaining  in  popular  favor  and  is  destined 
to  play  a  most  important  part  in  State  tax  systems. 

The  inheritance  tax  cannot  be  considered  a  tax  on  the  decedent,  but  must 
be  and  practically  is  regarded  as  a  tax  on  the  recipient.  Only  on  this  theory 
would  the  rate  be  graded  according  to  the  relation  of  the  recipient  to  the 
decedent.  It  is  a  method  of  taxing  income  or  property  at  its  source.  The 
arguments  presented  in  its  justification  are  numerous  and  diverse.  Those  com- 
munistically  inclined  would  use  the  tax  to  diffuse  and  equalize  wealth,  but  almost 
any  other  tax  could  be  'ised  for  the  same  purpose,  so  that  its  advocacy  from 
this  source  need  not  disturb  the  individualist.  It  is  not  my  purpose  to  enter  into  a 
discussion  of  the  various  arguments,  but  merely  to  present  briefly  a  few  that 
appeal   to  me  most   strongly. 

1.  One  of  the  strongest  arguments  in  favor  of  the  inheritance  tax  arises 
from  the  recognized  right  and  duty  of  the  State  to  regulate  inheritance  to  such 
an  extent  as  the  public  welfare  my  require.  The  right  of  bequest  and  inheritance 
is  a  natural  right  only  to  the  extent  that  it  is  socially  useful;  that  it  furnishes 
an  incentive  to  the  creation  of  wealth  or  furthers  its  preservation  and  judicious 
management.  Although  we  uphold  device  and  descent  as  the  best  known  method 
of  securing  this  end,  yet  we  must  admit  that  it  is  open  to  very  serious  objections 
and  very  often  fails  completely.  While  the  man  who  acquires  wealth  by  that 
act  gives  evidence  of  his  ability  to  manage  it  properly,  it  is  by  no  means  so 
certain  that  his  heirs  will  possess  that  qualification.  It  is  most  fitting,  therefore, 
that  the  State  in  apportioning  the  burden  of  taxation  should  take  cognizance  of 
this  condition  and  obtain  a  portion  of  its  revenue  from  estates  at  the  time  of 
their  transfer  to  hands  that  have  given  no  evidence  of  ability  to  manage  them 
economically.  Such  a  tax,  if  the  rate  be  moderate,  can  only  further  the  true 
social  function  of  device  and  descent,  i.  e.,  the  furtherance  of  the  creation  and 
the  judicious  management  of  wealth.  The  tax  is  an  incentive  rather  than  a 
hindrance  to  the  creation  of  wealth  and  insures  that  after  its  transfer  at  death 
a  certain  portion,  at  least,  will  serve  a  socially  useful  purpose. 

2.  The  inheritance  tax  is  a  tax  on  property  that  can  in  no  way  be  shifted  so 
as  to  become  a  tax  on  labor  or  industry.  It  is  generally  recognized  that  property 
should  be  taxed  at  a  much  higher  rate  than  labor,  and  from  this  it  follows  that 
the  man  in  active  business  whose  income  is  largely  the  result  of  his  own  energy 
and  labor  should  not  be  subject  to  as  high  a  rate  of  taxation  measured  by 
income  as  the  man  whose  income  is  from  money  in  savings  banks,  bonds,  and 
other  perfectly  safe  investments.  The  income  in  the  one  case  is  largely  the 
reward  of  labor,  and  in  the  other  the  interest  on  past  accumulations  in  the 
investment  of  which  only  a  trifling  amount  of  labor  is  involved.     The  tendency 


NATIONAL   CONFERENCE   ON   TAXATION.  8i 

of  a  moderate  additional  tax  on  the  latter  form  of  income  is  to  decrease  the  num- 
ber of  those  who  do  or  may  enjoy  a  competence  without  any  personal  exertion; 
it  decreases  the  number  of  social  drones  and  adds  to  the  effective  labor  force. 
Its  effect  is  somewhat  similar  to  that  of  a  decline  in  the  rate  of  pure  interest. 
When  it  is  remembered  that  most  fortunes  are  created  by  men  in  active  busi- 
ness, who  give  their  entire  time  and  strength  to  the  work,  and  that  those  who 
Jive  from  their  incomes  without  themselves  engaging  in  active  business,  or.  in 
other  words,  laboring,  are  in  most  cases  those  whose  fortunes  have  come  to 
them  through  inheritance,  the  advantage  of  the  inheritance  tax  as  a  means  of 
placing  an  additional  burden  on  property  without  at  the  same  time  taxing 
labor  or  industry,  is  very  apparent.  A  tax  of  lo  per  cent  on  a  bequest  is  equiva 
lent  to  an  annual  tax  of  lo  per  cent  on  the  income  from  the  bequest. 

3.  The  inheritance  tax  is,  moreover,  the  best  substitute  for  the  present 
ineffectual  attempt  to  tax  intangible  personalty  directly  by  means  of  the  general 
property  tax.  A  common  sense  of  justice  demands  that  the  bond  and  mortgage 
holder  should  pay  a  substantial  tax  on  his  income  from  the  investment,  but  as  is 
well  known  the  direct  tax  on  this  class  of  property  is  either  evaded  entirely  or 
shifted  to  the  borrower.  The  inheritance  tax,  however,  can  only  with  great 
difificulty  be  evaded  and  can  not  be  shifted;  and  will  most  effectually  reach  this 
class  of  wealth  that  is  at  present  practically  exempt  from  taxation.  To  partly 
compensate  for  their  exemption  from  direct  taxation,  bonds  and  mortgages 
passing  at  death  should  be  subject  to  taxation  at  a  higher  rate  than  property, 
not  thus  exempt.  And  even  if  no  bonds  or  mortgages  are  included  in  the  estate, 
the  inheritance  tax  nevertheless  indirectly  reaches  this  kind  of  property,  for  the 
recipient  will  most  probably  invest  a  portion  of  his  inheritance  in  stocks  and 
bonds,  and  the  tax  is  equivalent  to  annual  tax  on  the  income  from  this  invest- 
ment. 

4.  As  a  result  of  the  fact  that  the  inheritance  tax  does  not  tax  industry  and 
can  in  no  way  be  shifted,  its  imposition  or  alteration  results  in  no  disturbance  of 
business  or  industrial  relations.  This  is  a  most  notable  advantage,  for  the 
restrictive  and  prohibitive  effects  of  some  taxes  and  the  severe  disturbance  of 
industrial  conditions  resulting  from  the  introduction  of  other  taxes,  are  extremel> 
important,  and  are  the  causes  that  most  often  prevent  the  adoption  of  legislative 
reforms.  It  is  the  very  great  hardship  and  injustice  resulting  from  the  sudden 
imposition  of  a  tax  or  from  a  change  in  its  rate  that  effectually  blocks  99  out  of 
100  of  the  proposed  reforms.  The  inheritance  tax  can  be  imposed  and  its  rate 
altered  from  time  to  time  in  response  to  the  demands  of  justice  or  to  the  needs 
of  the  State  without  producing  industrial  disturbance  or  hardship. 

The  justification  and  desirability  of  the  tax  having  been  considered,  the  next 
question  is  that  of  a  proportional  or  a  progressive  rate. 

I.  In  the  first  place,  it  is  universally  recognized  that  there  should  be  some 
progression  in  rate  as  between  different  classes  of  heirs.  If  direct  heirs  are 
taxed  at  all  they  are  always  taxed  at  a  lower  rate  than  collateral  heirs.  In  the 
United  States  the  general  rule  is  to  tax  direct  inheritance  i  per  cent,  and  collateral 
5  per  cent.  The  heirs  should  be  divided  into  a  certain  number  of  classes  based 
on  the  equitable  claim  which  they  have  to  the  property  of  the  decedent,  due  to 
dependence  on  him  for  support  or  to  co-operation  in  any  degree  in  the  accumu- 
lation of  the  property.  It  seems  just  that  in  the  case  of  husbands,  wives,  and 
minor  children  there  should  be  a  larger  exemption  or  lower  tax  than  for  any 
other  class  of  heirs,  and  that  adult  children  and  parents  should  not  be  taxe<? 
^o  highly  as  collateral  heirs. 


82  THE   NATIONAL   CIVIC   FEDERATION. 

2.  The  same  reasons  that  have  been  adduced  to  show  the  justice  of  the 
inheritance  tax  are  also  arguments  for  a  rate  progressive  as  to  the  amouni  of 
the  inheritance,  (i)  The  danger  of  mismanagement  is  greater  in  the  case  of 
large  than  of  small  inheritances ;  (2)  the  larger  the  inheritance  the  greater  thr 
probability  that  its  recipient  will  render  no  adequate  social  return  for  the  income 
he  receives;  and  (3)  the  larger  the  inheritance  the  greater  the  probability  thaf 
it  will  be  invested  in  such  a  way  as  to  largely  escape  direct  taxation.  The  prac- 
tical limit  to  the  progression  is  the  point  at  which  the  creation  of  wealth  is 
discouraged  or  means  of  evasion  devised. 

Inheritance  taxes  progressive  as  to  the  amount  of  the  inheritance,  are 
imposed  by  Switzerland,  Great  Britain,  Australia,  and  Canada,  and  in  the 
United  States  by  Colorado,  Illinois,  Nebraska,  North  Carolina,  Washington, 
and  the  National  Government.  The  Illinois  Act,  passed  in  1895,  and  upheld  by 
the  United  States  Supreme  Court,  imposes  taxes  at  the  following  rates  on  all 
property,  real  and  personal: 

1.  One  per  cent  on  excess  of  $20,000  passing  to  father,  mother,  brother,  sister. 
husband,  wife,  child,  or  lineal  descendant. 

2.  Two  per  cent  on  excess  of  $2,000  passing  to  uncle,  aunt,  nephew,  niece,  or 
lineal  descendant  of  same. 

3.  On  all  estates  passing  to  other  heirs :  $500  to  $10,000,  3  per  cent ;  $10,000 
to  $20,000,  4  per  cent;  $20,000  to  $50,000,  5  per  cent;  exceeding  $50,000  6 
per  cent. 

The  national  inheritance  tax  was  imposed  in  1898  as  a  war  tax,  but  has  since 
been  continued.  It  applies  only  to  personal  property,  the  rates  being  graduated 
first  as  to  degree  of  relationship  and  second  as  to  amount  of  inheritance.  The 
rates  according  to  degree  of  relationship,  when  the  whole  amount  of  the  per- 
sonal property  exceeds  $10,000  and  does  not  exceed  $25,000,  are  as  follows : 

1.  Three-quarter  of  i  per  cent  when  passing  to  lineal  issue,  lineal  ancestof, 
brother,  or  sister.    Property  passing  to  husband  or  wife  is  entirely  exempt. 

2.  One  and  one-half  per  cent,  when  passing  to  lineal  issue  of  brother  or 
sister. 

3.  Three  per  cent  when  passing  to  brother  or  sister  of  father  or  mother  or 
to  a  descendant  of  same. 

4.  Four  per  cent  when  passing  to  brother  or  sister  of  grandfather  or  grand- 
mother or  to  a  descendant  of  same. 

5.  Five  per  cent  when  passing  to  other  than  above. 

Personal  estates  exceeding  $25,000  in  value  are  taxed  at  multiples  of  the  abov;* 
rates  as  follows : 

1.  $25,000  to  $100,000,  iy2  times  above  rates. 

2.  $100,000  to  $500,000,  2  times  above  rates. 

3.  $500,000  to  $1,000,000,  2j^  times  above  rates. 

4.  Exceeding  $1,000,000,  3  times  above  rates. 

The  progressive  taxes  of  Colorado,  Nebraska,  North  Carolina,  and  Washing- 
ton were  established  in  1901.  The  rates  in  Colorado  and  Nebraska  follow  quite 
closely  those  of  the  Illinois  act.  The  North  Carolina  tax  is  modeled  after  that 
of  the  National  Government. 

The  Washington  Act  imposes  a  direct  inheritance  tax  of  i  per  cent,  on  all 
property  above  $10,000  and  a  progressive  collateral  inheritance  tax  on  all 
amounts  of  property  at  rates  varying  from  3  tp  12  per  cent.  On  property  passing 
to  collateral  heirs  to  and  including  the  third  degree  of  relationship,  the  following 
progressive  rates  are  established : 


NATIONAL   CONFERENCE   ON    TAXATION.  83 

1.  On  all  sums  not  exceeding  the  first  $50,000,  3  per  cent. 

2.  On  all  sums  above  the  first  $50,000  and  not  exceeding  the  first  $100,000, 
4^  per  cent. 

3.  On  all  sums  in  excess  of  the  first  $100,000,  6  per  cent. 
In  the  case  of  collateral  heirs  beyond  the  third  degree  of  relationship,  and 
strangers,  the  progression  is  as  follows: 

1.  On  all  sums  not  exceeding  the  first  $50,000,  6  per  cent. 

2.  On  all  sums  above  the  first  $50,000  and  not  exceeding  the  first  $100,000, 
9  per  cent. 

3.  On  all  sums  in  excess  of  the  first  $100,000,  12  per  cent 

The  progression  in  Illinois  is  from  i  per  cent  to  6  per  cent,  and  in  tho 
national  tax  from  ^  of  i  per  cent  to  15  per  cent.  The  inheritance  tax,  State 
and  National,  on  personal  property  of  residents  of  Illinois,  therefore,  ranges  from 
iJ4  per  cent  to  21  per  cent.  This  brings  up  the  question  of  the  separation  of 
the  sources  of  revenue.  Would  it  not  be  wise  to  restrict  the  use  of  the 
inheritance  tax  either  to  the  National  or  to  the  State  governments?  At  present 
the  double  rates  are  not  excessive;  but  could  not  a  more  equitable  system  be 
expected  if  there  were  not  two  entirely  distinct  authorities  imposing  the  tax" 
If  the  tax  should  be  relinquished  to  the  National  Government  many  complications' 
growing  out  of  the  different  methods  of  the  different  States  and  the  resulting 
double  taxation  and  injustice  would  be  avoided.  There  would  be  a  uniform  tax 
for  the  whole  country,  thus  greatly  reducing  the  possibility  of  evasion  througli 
a  change  of  residence,  and  the  revenue  from  the  tax  on  account  of  the  large  area 
included  would  be  subject  to  less  fluctuation  from  year  to  year  than  the  revenue 
of  a  single  State  from  the  same  source.  Moreover,  the  fact  that  the  impositior. 
or  alteration  of  the  inheritance  tax  results  in  no  injustice  or  industrial  dis- 
turbance, together  with  the  fact  that  it  can  be  put  in  full  operation  without  much 
delay,  and  that  an  increase  in  rate  results  in  an  immediate  and  proportionate 
increase  in  revenue,  makes  it  peculiarly  valuable  as  a  war  tax. 

On  the  other  hand,  the  complications  arising  from  the  diverse  systems  of  the 
States  may  be  largely  obviated  by  the  adoption  by  the  States  of  simple  prin- 
ciples of  interstate  comity.  Except  in  the  emergency  of  war  the  National 
Government  is  not  in  so  great  need  of  the  inheritance  tax  as  a  source  of  revenue 
as  are  the  States,  and  with  the  very  considerable  centralization  and  development 
of  State  administration,  which  must  inevitably  take  place.  State  expenditures 
will  continue  to  increase.  The  States  need  the  inheritance  tax  as  a  substitute  io: 
the  present  attempt  to  tax  intangible  personalty  directly,  and  as  a  means  o^ 
rounding  out  their  tax  system.  It  will  also  be  of  great  assistance  in  bringing 
about  a  separation  of  the  sources  of  revenue  between  the  State  and  the  loca? 
governments.  Perhaps  the  most  desirable  arrangement  would  be  to  reserve  the 
tax  in  times  of  peace  for  State  purposes,  and  for  the  National  Government  to 
use  it  strictly  as  a  war  tax.  As  a  war  measure  the  increased  rate  would  be 
borne  without  great  discontent.  The  inheritance  tax  would  thus  serve  the 
real  need  of  the  National  Government  while  at  the  same  time  helping  materially 
to  bring  order  out  of  the  existing  chaos  of  State  Taxation. 

Mr.  Judson  :  Mr.  Chairman,  it  seems  to  me  that  this  question  of  Inheritance 
Taxation  is  one  of  the  most  interesting  and  important  in  the  whole  range  of 
taxation'  problems.  It  furnishes  an  answer  to  the  suggestion  of  our  friend  from 
Indiana.  I  agree  with  him  that  the  wealth  which  is  not  invested  in  the  land 
should  bear  its  share  of  public  burdens,  but  what  I  say  is,  that  we  shonl  t 
reach  it  by  effective  and  not  by  ineffective  methods.     An  inheritance  tax,  as  the 


84  THE   NATIONAL   CIVIC   FEDERATION. 

paper  stated,  cannot  be  shifted  and  cannot  be  evaded.  All  the  estates  of  the 
country  will  in  the  course  of  human  events  pass  through  the  Probate  Court  in 
the  course' of  thirty  or  forty  years,  and  the  inheritance  tax  is  a  sure  means  of 
reaching  the  wealth  that  is  invested  in  such  estates.  We  now  have  that  ta.K 
imposed  by  the  United  States  Government  and  by  some  of  our  States.  There 
is  one  point  suggested  by  the  speaker  to  which  I  would  call  attention,  and  that 
is  the  matter  of  double  taxation  through  the  conflicting  State  authorities  in 
inheritance  taxes.  A  man  dies  in  the  State  of  New  York  so  that  the  principnl 
administration  upon  his  estate  is  there,  and  he  leaves  property  in  other  States 
which  can  be  secured  to  his  heirs  or  legatees  through  ancillary  adminis- 
tration in  such  States.  Our  inheritance  tax  laws,  as  a  rule,  levy  a  tax 
in  each  State  not  only  on  the  right  of  inheritance  acquired  under  the  laws 
of  that  State  primarily,  but  also  upon  property  of  the  State  which  passes 
under  the  laws  of  other  States.  In  other  words,  the  devise  or  legacy  to 
the  devisee  or  legatee  pays  a  double  tax,  both  under  the  law  of  the  State 
where  the  property  is  located,  and-  the  law  of  the  State  where  the  primary  admin 
istration  is  had.  No  doubt  the  lawyers  present  have  known  of  several  such 
Cases  of  double  taxation  of  inheritance.  The  principle  of  interstate  comity 
should  prevail  in  a  government  like  ours  where  State  lines  divide  us,  but  where 
we  are  one  government  nationally.  Commerce,  business,  and  social  relations 
know  no  State  lines,  and  we  should  have  the  principle  of  interstate  comity  i^. 
all  forms  of  taxation,  and  certainly  in  the  form  of  inheritance  taxation.  While 
I  believe  heartily  in  the  justice  of  an  inheritance  tax  and  in  its  policy,  it  should 
be  limited  to  the  State  of  the  primary  administration;  that  is,  the  State  under 
whose  laws  a  citizen  passes  title  to  his  property  to  those  who  come  after  him, 
to  pay  for  the  maintaining  of  the  government  of  that  State.  Our  Supreme 
Court  in  Missouri  held  unconstitutional  a  progressive  inheritance  tax  holding 
that  it  Was  class  legislation,  but  sustained  a  subsequent  law,  following  the 
decision  of  the  Supreme  Court  of  the  United  States,  where  the  discrimination 
was  as  between  different  degrees  of  relationship.  Under  the  collateral  inheri- 
tance law  in  Missouri  the  proceeds  of  the  tax  are  given  to  the  State  University. 

The  Chairman  :  The  gentleman's  time  has  now  expired.  If  there  is  no 
further  discussion  of  this  special  question  of  inheritance  tax  the  Chair  will  call 
upon  Judge  T.  E.  Howard,  of  Indiana,  who  has  a  paper  prepared  on  the  Indiana 
laws,  which  paper  and  the  discussion  I  am  sure  will  be  of  interest  this  morning 
■jto  the  members  of  this  Conference. 

.  THE  INDIANA  GENERAL  PROPERTY  TAX  LAW. 

BY  JUDGE  TIMOTHY   E.    HOWARD. 


The  essential  principle  of  the  Indiana  Tax  Law,  the  Reform  Act  of  1891,  and. 
its  several  amendments,  is  that  all  property  within  the  jurisdiction  of  the  S>t2^^ 
shall  be  assessed  at  its  true  cash  value.  This  is  the  basis  upon  which  the  law 
rests  and  upon  and  around  which  all  the  provisions  of  the  system  are  con- 
structed. 

By  "true  cash  value"  is  meant,  as  defined  in  Section  53  of  the  Act,  "the  usual 
selling  price"  at  the  place  where  the  property  is  at  the  time  of  assessment,  "bein<* 
the  price  which  could  be  obtained  therefor  at  private  sale,  and  not  at  forced 
or  auction  sale."  And,  as  said  in  Section  48,  if  there  is  no  selling  price  or 
market  value,  then  the  property  is  to  be  assessed  at  "the  actual  value."    - 


NATIONAL    CONFERENCE    ON    TAXATION.  85 

The  authority  of  the  Legislature  for  the  enactment  of  the  statute  is  found  in 
Article  X,  Section  i,  of  the  Constitution,  which  reads  as  follows: 

"The  General  Assembly  shall  provide,  by  law,  for  a  uniform  and  equal  rate 
of  assessment  and  taxation ;  and  shall  prescribe  such  regulations  as  shall  secure 
a  just  valuation  for  taxation  of  all  property,  both  real  and  personal,  excepting 
such  only  for  municipal  educational,  literary,  scientific,  religious,  or  charitable 
purposes,  as  may  be  especially  exempted  by  law." 

With  the  exceptions  named,  therefore,  all  property  within  the  State,  whether 
real,  personal  or  mixed,  whether  chattel  or  credit,  whether  tangible  or  intangible, 
is  subject  to  just  valuation,  uniform  assessment,  and  equal  taxation. 

The  only  privilege  allowed  to  the  Legistlature,  and  the  only  privilege  taken 
by  that  body,  is  to  fix  upon  what  shall  be  the  uniform  and  equal  valuation  and 
assessment  of  the  property  within  the  State. 

Previous  to  1891  the  Legislature,  while  directing  that  the  rate  of  assessment 
and  taxation  should  be  uniform  and  equal,  as  required  by  the  Constitution,  had 
been  content  to  provide  as  to  the  valuation  simply,  that  it  should  be  "fair."  The 
word  fair  in  this  connection  proved  to  be  a  term  without  definite  meaning.  In 
one  county  or  one  township  it  was  taken  to  mean  one  thing,  in  another  another. 
It  was  considered  "fair,"  in  even  the  same  assessing  district  to  value  one  kind 
of  property  at  one  rate  and  another  at  another.  Townships,  too,  vied  with 
one  another  to  diminish  their  own  property  valuation,  so  as  to  ;-educe  their 
relative  proportion  of  county  and  State  taxes ;  and  counties  vied  with  one 
another  in  like  manner  as  to  State  taxes.  Moreover,  each  Assessor  in  the 
thousand  and  over  townships  of  the  State  differed,  in  judgment  or  design,  from 
almost  every  other  Assessor  as  to  what  should  be  considered  the  fair  valuation 
of  any  given  species  of  property. 

One  result  of  such  "fair"  valuation  was  that  throughout  the  State  property 
was  valued  at  from  five  or  ten  to  ninety  or  over  per  cent  of  its  real  value — some 
taxpayers  thus  bearing  much  less  and  some  much  more  than  their  just  and  equal 
share  of  the  public  burdens. 

Another  result  was  the  continuing  need  of  increasing  the  rate  of  taxation,  in 
a  struggle  to  maintain  a  sufficient  public  revenue,  based  upon  a  constantly  dimin- 
ishing "fair  tax  valuation." 

Where  the  courage  of  the  officer  or  board  making  the  levy  was  not  equal 
to  the  requirements  of  thus  raising  the  tax  rate,  the  treasuries  failed  to  furnish 
sufficient  means  for  public  expenditure.  Loans  were  accordingly  made  neces- 
sary to  supply  the  deficiencies,  and  the  interest  burden  grew  heavier  from  year 
to  year. 

The  evil  was  particularly  apparent  in  the  condition  of  the  State  finances.  The 
debt  of  the  Commonwealth  had  grown  to  be  over  eight  millions  and  was 
increasing  rapidly.  The  members  of  the  Legislature  had  little  inclination  to 
increase  the  State  levy.  Indeed,  so  unequal  was  the  valuation  of  property  that 
there  was  a  seeming  injustice  in  making  the  burden  heavier  on  those  who  were 
already  bearing  more  than  their  just  share.  Resort  was  therefore  had  to  further 
loans,  until  large  sums  were  actually  borrowed  to  pay  interest  on  borrowed 
money,  thus  compounding  the  interest  of  the  public  debt. 

From  this  condition  it  came  to  pass  that  the  Legislature  of  1891  found  the 
question  of  public  revenue  the  one  important  problem  for  solution.  The  issue 
was  met  frankly  and  boldly;  not  by  any  weak  or  temporary  expedient,  but  by 
a   sweeping  revision  of  the  whole  system  of  taxation.     It  was  not  difficult  to 


86  THE   NATIONAL   CIVIC   F£DERATI0N. 

perceive  that  the  source  of  evil  was  the  unequal  valuation  of  property,  and 
legislation  was  directed  particularly  to  meet  this  defect. 

Provided  there  should  be  uniformity  of  valuation,  and  provided  all  property, 
of  every  kind  and  description,  should  be  assessed,  it  was  manifest  that  the  rate 
or  standard  of  valuation  might  be  arbitrarily  fixed.  Whether  all  property  were 
assessed  at  its  true  value,  or  at  half  its  value,  or  at  twice  its  value,  the  burden 
of  taxation  would  still  be  proportionate  to  the  property.  If  a  given  levy,  on  the 
true  value,  should  afford  the  necessary  revenue,  then  half  such  levy  on  twice 
the  value  would  bring  in  the  same  revenue;  as  would  also  twice  the  levy  on 
half  the  value.  What  seemed  the  essential  thing  to  do  was  to  assess  all  the 
property  at  a  fixed  and  uniform  valuation.  The  public  burden  would  thus  be 
equally  borne  by  every  dollar's  worth  of  property  in  the  State. 

But  to  the  Legislature  of  1891  it  seemed  an  idle  thing  to  fix  fifty  per  cent, 
or  eighty  per  cent,  or  any  other  per  cent,  of  the  real  value  of  property  as  the 
taxable  value.  If  the  real  value  must  first  be  ascertained,  why  not  let  that  stand 
as  the  taxable  value?  The  Assessor  would  thus  be  burdened  with  one  less 
calculation.  The  simplicity  of  the  standard  seemed  its  sufficient  reason.  The 
market  value,  the  selling  price  at  free  private  sale,  in  a  word,  the  true  cash  value, 
appeared  the  rational  standard  valuation  for  taxation. 

The  words  of  Mr.  Justice  Brewer,  since  written,  in  the  case  of  Express  Com- 
pany vs.  Auditor,  166  U.  S.,  185,  give  concise  statement  to  the  conclusion  thus 
reached :  "Whatever  property  is  worth  for  the  purposes  of  income  and  sale,"  he 
says,  "it  is  also  worth  for  purposes  of  taxation."  "Substance  of  right,"  he  con- 
tinues, "demands  that  whatever  be  the  real  value  of  any  property,  that  value 
may  be  accepted  by  the  State  for  purpose  of  taxation,  and  this  ought  not  to  be 
evaded  by  any  mere  confusion  of  words." 

The  Legislature  of  1891  was  not  long,  therefore,  in  coming  to  the  conclusion 
that  the  rational  basis  of  valuation  was  the  true  market  or  cash  value.  If  all 
the  property  of  the  State  should  be  listed,  and  if  it  should  all  be  assessed  at  its 
true  value,  it  was  plain  that  every  item  of  property,  of  whatever  kind  or  descrip- 
tion, would  be  ratably,  uniformly,  and  evenly  presented  for  the  action  of  the 
officers  making  the  tax  levy.  Then  the  amount  of  revenue  necessary  for  public 
purposes  being  known,  the  rate  of  the  levy  would  be  a  matter  of  simple 
computation;  and  every  property  owner  of  the  State  would  be  uniformly  and 
justly  assessed  in  actual  proportion  to  the  property  owned  by  him. 

That  is  the  end  proposed  by  the  Indiana  system  of  taxation.  The  ideal  is 
presented,  and  every  provision  of  the  law  is  framed  to  aid  in  bringing  about 
the  full  and  complete  attainment  of  this  ideal.  If,  owing  to  the  imperfection 
of  human  things,  the  perfect  ideal  cannot  be  attained,  then,  as  Webster  once  said, 
in  relation  to  apportionment  laws,  the  nearest  approximation  to  such  perfection 
becomes  itself  an  end  to  be  sought.  Hence  to  the  people  of  Indiana  the  subject 
of  taxation  is  a  practical,  not  a  speculative,  question. 

The  machinery  of  the  law,  if  it  may  be  so  called,  consists  of  assessing 
officers  and  boards,  beginning  with  the  Township  Assessor  and  closing  with 
State  Board  of  Tax  Commissioners — a  closely  knit  chain  from  the  first  step  to 
the  last. 

Between  the  first  day  of  April  and  the  first  day  of  June  in  each  year,  the  first 
step  is  taken  by  the  property  owner  himself,  who  furnishes  to  the  Township 
Assessor  a  sworn  statement  and  cash  valuation  of  all  his  property.*  The  Assessor 
is  not  at  all  bound  by  such  statement,  but  from  the  statement  so  made,  and  from 
all  other  available  information,  he  makes  the  original  assessment,  assessing  the 


NATIONAL   CONFERENCE   ON    TAXATION.  87 

property  at  its  true  cash  or  market  value,  "and  if  there  is  no  market  value,  then 
the  actual  value." 

From  the  first  day  of  June  until  the  first  Monday  after  the  fourth  day  of 
July,  in  each  year,  the  returns  of  the  Township  Assessor  are  placed  in  the  hands 
of  the  County  Assessor,  whose  duty  it  is  to  add  to  the  lists  all  omitted  property 
which  he  may  be  able  to  discover,  particularly  notes,  mortgages,  judgments,  and 
other  like  credits,  shown  upon  the  County  Records;  all  of  which  he  will  like- 
wise assess  at  the  true  cash  value.  The  County  Assessor,  as  also  the  County 
Auditor  and  County  Treasurer,  are  further  required,  at  any  time  during  the 
year,  to  place  upon  the  Tax  Records  other  property  found  to  have  been  omitted 
from  the  assessment  lists. 

The  County  Assessor,  County  Auditor,  and  County  Treasurer,  together  with 
two  free-holders  appointed  by  the  Circuit  Judge,  constitute  a  County  Board  of 
Review,  whose  duties  are  to  review  and  equalize  the  assessments  made  by  the 
Township  Assessors  and  the  County  Assessor.  The  session  of  the  County  Board 
of  Review  is  for  twenty  days,  beginning  on  the  third  Monday  of  June,  in  each 
year,  except  that  every  fourth  year,  when  real  estate  is  appraised,  the  session  is 
for  thirty  days.  In  case  the  Board  desires  to  add  and  assess  omitted  property, 
or  to  raise  the  assessment  of  any  property,  notice  must  be  given  the  party  to  be 
affected,  if  a  resident  of  the  County ;  but  in  no  case  will  the  Board  be  authorized 
to  so  change  the  assessment  of  any  property  as  to  make  such  assessment  more 
or  less  than  the  true  cash  value. 

The  Governor,  Secretary  of  State,  and  Auditor  of  State,  together  with  two 
skilled  and  competent  persons  appointed  by  the  Governor,  constitute  the  State 
Board  of  Tax  Commissioners,  whose  duties  are  to  supervise  the  whole  taxing 
system  of  the  State.  This  Board  is  to  review  and  equalize  the  assessments  as 
made  by  the  County  Boards  of  Review.  Appeals  lie  to  the  State  Board  from 
the  County  Board.  The  State  Board  also,  in  case  of  necessity,  equalizes  the 
assessments  as  among  the  several  counties.  The  State  Board  of  Tax  Commis- 
sioners has  sole  original  jurisdiction  to  assess  that  part  of  railroad  property 
denominated  railroad  track  and  rolling  stock ;  also  all  property  belonging  to 
telegraph,  telephone,  palace  car,  sleeping  car,  drawing-room  car,  dining  car, 
express  and  fast  freight,  joint  stock  association  companies,  co-partnerships  and 
corporations,  doing  business  in  the  State  of  Indiana,  and  also  street  railways 
and  other  inter-county  property. 

The  method  of  valuation  in  such  cases  is  first  to  determine  the  true  cash 
value  of  all  the  property,  within  and  without  the  State,  or  in  the  several  counties, 
and  then  take  for  the  assessment  of  the  part  of  the  property  in  Indiana,  or  in 
any  county,  that  proportion  of  the  whole  value  which  the  length  of  the  line  within 
the  State  or  the  county,  bears  to  the  length  of  the  whole  line.  The  mileage 
basis  of  taxation,  so  used,  is  adopted  upon  the  assumption  that,  other  things 
being  equal,  each  mile  of  railroad,  telegraph,  or  other  like  property  is  of  equal 
value  with  every  other  mile  of  the  same  property,  whether  within  or  without 
the  State  or  the  county. 

The  sessions  of  the  State  Board  of  Tax  Commissioners  begin  on  the  second 
Monday  in  July  of  each  year.  The  assessments  as  made  or  modified  by  the 
Board  are  certified  to  the  several  County  Auditors,  after  which  the  tax  duplicates 
of  the  several  counties  of  the  State  are  made  up. 

The  sole  principle  guiding  each  taxing  officer  and  Board,  and  to  the  enforce- 
ment of  which  he  binds  himself  by  his  oath  of  office,  is,  that  all  the  property 
within  the  jurisdiction  of  the  State,  except  that  which  is  expressly  exempted 


SS  THE   NATIONAL   CIVIC   FEDERATION. 

by  the  Constitution,  shall  be  listed  for  taxation,  and  that  the  property  so  Hsted 
shall  be  assessed  uniformly  throughout  the  State,  *'at  its  true  cash  value." 

The  opposition  to  the  tax  law  of  1891  was  at  first  vigorous  and  determined. 
This  opposition  came  chiefly  from  railroad,  telegraph,  banking  and  other  like 
companies.  Those  organizations  seemed  to  be  of  opinion  that,  in  some  way, 
they  suffered  great  wrong  by  having  their  property  assessed  at  the  same  rate  as 
other  property  of  the  State.  The  truth  is  that  prior  to  the  Act  of  1891  the 
assessment  of  such  property  was  in  many  cases  merely  nominal,  and  the  great 
burdens  of  taxation  fell  upon  the  owners  of  real  estate  and  the  small  property 
holders  of  the  State.  The  numerous  suits  brought  to  overthrow  the  law  resulted, 
however,  in  its  complete  vindication  as  a  valid  and  constitutional  enactment, 
both  by  the  Supreme  Court  of  the  State  and  by  that  of  the  United  States.  See 
particularly,  133  Ind.,  513,  609,  625;  141  Ind.,  281;  144  Ind.,  549;  154  U.  S.,  421; 
163  U.  S.,  I ;  and  166  U.  S.,  185.  Since  those  decisions,  and  after  the  admirable 
results  of  the  law  became  apparent,  the  measure  has  been  fully  acquiesced  in  by 
all  the  property  owners  of  the  State;  and  from  a  very  unpopular  Act,  the  tax 
law  of  1891  has  been  approved  by  all  the  people  as  a  piece  of  wise  and  beneficial 
legislation. 

During  the  ten  years  that  the  law  has  been  in  operation  the  people  and  the 
taxing  officers  have  become  educated  in  matters  relating  to  the  public  revenue. 
There  is  a  more  economical  administration  of  the  finances  of  the  State  and  of 
the  various  municipaUties.  Levies  are  made  more  nearly  in  accordance  with 
the  needs  of  public  expenditure,  and  altogether  there  is  a  more  intelligent 
appreciation  of  matters  relating  to  the  public  revenues.  Almost  immediately 
after  the  enactment  of  the  law  the  State  ceased  to  be  a  borrower,  and  year  by 
year  since  1891,  without  any  inconvenience  to  the  State  Treasury,  the  public 
debt  has  been  steadily  diminished,  until  it  has  ceased  to  be  a  burden  upon  the 
people.  Indeed,  a  chief  purpose  on  the  part  of  the  Legislature  has  been  to  so 
reduce  the  State  levy  for  taxes  that  the  debt  may  not  be  paid  off  faster  than 
seems  necessary. 

Altogether  the  people  of  Indiana  have  good  reason  to  be  satisfied  with  their 
system  of  revenue  and  taxation.  There  may  still  be  improvement  in  tha  law,  and 
such  improvements  have  been  made  from  session  to  session  of  the  Legislature 
as  they  have  been  suggested  in  the  practical  administration  of  the  law.  It  is 
doubtful,  however,  as  we  think,  whether  a  better  practical  system  of  assessment 
and  taxation  can  be  devised.  If  such  better  system  can  be  devised,  the  people 
of  Indiana  will  be  among  the  first  to  advocate  its  adoption.  Until  then  we  shall 
continue  to  sustain,  and  improve,  if  we  can,  the  Tax  Law  of  1891. 

The  Chairman  :  Gentlemen  of  the  Conference,  it  has  been  suggestt-d  by 
reason  of  the  fact  that  many  of  the  delegates  will  be  unable  to  be  present  to- 
morrow and  remain  over  for  the  papers  of  that  time,  that  we  attempt  to  complete 
the  reading  of  the  papers  to-day.  Therefore,  we  will  add  to  the  papers  to  be 
read  this  morning  and  will  devote  a  longer  time  this  afternoon  than  was  antici- 
pated. It  is  believed  that  by  so  doing  we  can  complete  the  work  of  the  Conference 
this  afternoon.  Before  going  into  any  further  discussion  we  will  first  hear  the 
paper  of  Prof.  C.  W.  Tooke,  of  Illinois. 

Mr.  Davis  :    May  I  ask  what  per  cent  the  law  of  189 1  has  added  ? 

Mr.  Howard  :  The  amount  of  revenue,  do  you  mean  ? 

Mr.  Davis:   Yes,  of  course. 


NATIONAL   CONFERENCE   ON    TAXATION.  89. 

Mr.  Howard:  That  has  been  regulated  simply  according  to  the  needs  of  the 
different  municipalities  and  the  levy  has  been  diminished  to  correspond  with  the 
increase  of  the  valuation  of  the  property. 

Mr  Davis  :  I  wanted  to  know  what  per  cent  the  revenue  of  the  State  has 
been  increased  by  the  new  law  ? 

Mr.  Howard  :  About  thirty,  I  am  informed  by  a  gentleman  from  Indiana, 
but  I  did  not  know  that  myself.  I  will  say,  however,  that  Attorney- General 
Taylor,  if  he  is  present  still,  can  answer  questions  of  that  class  better  by  reason 
of  his  connection  with  the  State  Government. 

Mr.  Taylor:     Thirty  per  cent. 

Mr.  Davis:  What  per  cent  of  that  is  from  banks  and  other  corporations? 

Mr.  Taylor:  About  twenty-si.x  or  twenty-seven  per  cent. 

Mr.  Davis  :  The  large  amount  of  the  increase  falls  upon  corporations  and  but 
little  on  land. 

Mr.  Taylor:    And  personal  property;   very  little  on  land. 

The  Chairman:   The  Chair  will  now  introduce  Prof.  Tooke,  of  Illinois 

Mr.  Tooke:  I  feel  somewhat  like  apologizing  after  the  very  optimistic  state- 
ment of  affairs  in  Indiana,  for  giving  our  experience  in  Illinois.  We  are  depend- 
ing upon  a  general  property  tax  for  nearly  all  our  revenue.  That  is  the  system 
which  has  prevailed  in  the  State  since  its  organization.  I  may  say,  further,  that 
prior  to  the  present  session  of  the  Legislature  the  revenue  law  of  our  State 
consisted  of  some  three  hundred  and  sixty-nine  separate  sections,  of  which 
some  fifty-nine  constitute  what  is  known  as  the  new  revenue  law  which  was 
passed  in  1898.  With  regard  to  the  operation  of  the  general  property  tax 
prior  to  1898  our  experience  was  similar  to  the  experience  of  other  States  in 
that  personal  property  largely  escaped  taxation,  and  from  1872  to  1898  our  assess- 
ment had  steadily  decreased.  We  were  then  assessing  as  was  supposed  upon 
a  full  cash  valuation,  so  that  it  was  shown  that  dishonesty  had  been  invited  by 
our  system  of  listing.  It  was  shown  on  the  face  of  the  returns  that  every  tax 
officer  of  the  State  was  a  perjurer.  It  was  also  shown  that  the  people  of 
Chicago  escaped  a  large  proportion  of  the  State  tax,  not  because  that  city  was 
unwilling  to  pay  its  proportion,  but  because  of  the  overlapping  of  municipal 
corporations  on  the  same  territory,  it  was  felt  necessary  in  the  city  of  Chicago 
to  reduce  the  assessments,  A  very  lively  hope  was  entertained  in  1898  that  the 
passage  of  a  new  revenue  law  would  cure  those  defects.  It  is  with  that  law 
and  its  operation  that  I  have  to  deal. 

THE  "NEW  REVENUE  LAW"  OF  ILLINOIS. 

by  CHARLES   W.   TOOKE. 


Lntroductio.v. 

the  general  property  tax  in  illinois. 

The  State  of  Illinois  is  laboring  under  the  traditions  of  the  general  prop- 
erty tax,  a  system  which,  with  unimportant  modifications,  has  obtained  since 
the  organization  of  the  State  government  in  1818.  The  constitution  of  that 
year  required  that  taxes  should  be  levied  by  "valuation,"  so  that  every  person 
should  pay  a  tax  "in  proportion  to  the  valuation"  of  his  property.  By  the  con- 
stitution of  1848,  some  alterations  were  made,  the  General  Assembly  being 
empowered  to  levy  special  taxes  on  certain  enumerated  lines  of  business,  but 


90  THE   NATIONAL   CIVIC   FEDERATION. 

the  principle  was  retained  that  all  persons  should  be  taxed  according  to  the 
value  of  the  property  in  their  possession.  Section  2  of  Article  IX.  of  the  con- 
stitution of  1848  requires  that  "General  Assembly  shall  provide  for  levying  a 
tax  by  valuation  so  that  every  person  and  corporation  shall  pay  a  tax  in  pro- 
portion to  the  value  of  his  or  her  property;  such  value  to  be  ascertained  by 
some  person  or  persons  to  be  elected  or  appointed  in  such  manner  as  the 
General  Assembly  shall  direct,  and  not  otherwise."  These  words  were  also 
incorporated  in  the  constitution  of  1870;  and  the  Supreme  Court  of  the  State 
has  ruled  that  their  effect  is  to  make  equality  and  uniformity  controlling  prin- 
ciples in  the  formulation  of  laws  for  levying  taxes,  but  that  the  practical  require- 
ments of  taxation  forbid  the  avoidance  of  a  tax  for  administrative  defects  such 
as  a  mistaken  valuation,  unless  fraud  in  the  assessment  can  be  shown.^ 

In  carrying  out  the  provisions  of  the  constitution  of  1870,  the  General 
Assembly  has  placed  upon  the  statute  books  many  acts  dating  from  1872  to 
1901.  Prior  to  the  minor  amendments  passed  at  the  recent  session,  the  revenue 
law  of  the  State  consisted  of  various  statutes  enacted  at  eleven  different  ses- 
sions, and  containing  no  less  than  three  hundred  and  ninety-seven  sections.  In 
1898,  at  a  special  session  called  mainly  for  that  purpose,  the  General  Assembly 
enacted  a  law  containing  some  fifty-nine  sections  commonly  known  as  the 
"New  Revenue  Law,"  which  was  believed  by  many  of  its  supporters  to  have 
solved  the  difficulties  of  reaching  all  the  property  in  the  State  by  an  equitable 
and  uniform  assessment. 

OPERATION   OF   GENERAL   PROPERTY   TAX    PRIOR   TO    1898. 

The  operation  of  the  general  property  tax  prior  to  1898  has  been  set  forth 
in  many  papers.  In  brief,  its  failure  in  attaining  uniformity  and  the  equitable 
apportionment  of  the  State  tax  between  the  various  counties  of  the  State  had 
become  so  marked  as  to  be  notorious.  Being  an  apportioned  tax,  even  under 
the  requirement  of  the  law  that  all  property  should  be"  assessed  at  fair  cash 
value,  the  temptation  to  undervaluations  between  counties  and  townships  led 
to  gross  injustice  being  done  to  individual  taxpayers.  The  revenue  commission 
of  1886  reported  that  the  range  of  assessments  varied  from  100  per  cent,  to  5 
per  cent,  of  fair  cash  value.  In  the  County  of  Cook,  with  its  multiplied  taxing 
agencies,  many  of  them  overlapping  the  same  territory,  to  the  incentive  of  avoid- 
ing the  county's  proportion  of  the  taxes  of  the  State  was  added  the  necessity 
of  further  reducing  assessments  to  prevent  an  overwhelming  burden  of  local 
taxation.  So  that,  while  it  was  reported  by  the  authorities  of  the  city  of  Chi- 
cago that  the  assessments  were  upon  a  ten  per  cent,  basis,  in  fact  it  was  shown 
that  in  many  cases  the  current  figure  was  nearer  one  per  cent. 

In  the  second  place,  universality  in  taxation  had  not  been  attained.  Per- 
sonal property,  which  peculiarly  owes  its  existence  and  protection  to  modern 
governmental  agencies,  had  been  permitted  to  escape  a  larger  and  larger  pro- 
portion of  its  just  burden.  In  1882,  personalty  paid  twenty-two  per  cent,  of 
the  total  tax  of  the  State.  Since  1894  it  has  been  less  than  seventeen  per  cent. 
If  we  add  to  these  defects,  the  facts  that  have  been  again  and  again  substan- 
tiated, that  the  system  had  been  found  to  invite  dishonesty,  that  every  tax 
officer  in  the  State  upon  the  face  of  the  returns  zvas  a  perjurer,  that  the  system 
was  regressive  in  throwing  the  heaviest  burdens  upon  the  agricultural  classes, 


^Livingston  County  vs.  Weider,  64  111.  427.    Spencer  vs.  People,  6&  111.  510. 
Republic  Life  Insurance  Co.  vs.  Pollak.  75  111.  292. 


NATIONAL   CONFERENXE   ON   TAXATION.  '      91 

we  can  see  how  active  was  the  hope  of  the  people  of  the  State  that  the  new  law 
of  1898  would  cure  the  existing  defects  in  the  assessment  and  collection  of  the 
revenue  of  the  State. 

THE   ACT    OF    1898. 

The  act  of  1898,  of  which  so  much  was  expected,  did  not  purport  to  change 
the  general  principles  of  the  law  of  taxation,  but  only  to  secure  a  more  thor- 
ough listing  of  general  property  by  the  entire  reorganization  of  the  administra- 
tion of  assessment.  It  provided  a  special  administrative  organziation  for  counties 
of  a  population  over  125,000.  In  other  counties,  under  the  supervisor  or  town- 
ship system  of  government,  which  applies  to  all  but  nineteen  counties  of  the 
State,  the  authority  to  equalize  the  county  assessments  was  taken  away  from 
the  Board  of  Supervisors,.  In  these  counties  the  County  Treasurer  was  made 
ex-officio  Supervisor  of  Assessments  and  the  charge  imposed  upon  him  of 
instructing  the  Township  Assessors  and  their  deputies  as  to  their  duties.  A 
Board  of  Review  was  also  created  in  each  such  county,  to  consist  of  the  County 
Clerk,  the  Chairman  of  the  Board  of  Supervisors  and  some  citizen  resident  of 
the  county,  to  be  appointed  by  the  County  Judge.  In  counties  under  the  com- 
missioner system  of  government,  the  board  of  County  Commissioners  was  made 
the  Board  of  Review.  In  counties  of  a  population  above  125,000,  the  Board  was 
made  elective,  with  a  tenure  of  six  years,  one  member  retiring  every  two  years. 
The  Board  of  Review  was  given  plenary  power  to  review  and  equalize  the 
assessments  returned  by  the  Supervisors  of  Assessments  and  the  Township 
Assessors.  Their  power  extended  to  the  raising  or  lowering  of  any  township 
assessment;  to  the  listing  of  any  individual  who  had  failed  to  return  a  sched- 
ule, to  the  examination  of  any  Assessor  or  other  person  under  oath,  under 
penalty  of  a  heavy  fine  for  refusal  to  answer  the  questions  propounded.  The 
State  Board  of  Equalization  was  continued,  but  its  power  to  increase  or  decrease 
the  total  assessment  of  the  State  was  limited  to  ten  per  cent. 

CONSTITUTIONALITY   OF   THE   LAW. 

The  question  of  the  validity  of  the  law,  so  far  as  it  related  to  the  reorgan- 
ization of  the  administration  of  assessment,  came  before  the  Supreme  Court 
of  the  State  in  December,  1898,  in  the  case  of  The  People  v.  Commissioners 
of  Cook  County.'  The  court  therein  held  that  the  act  did  not  in  that  respect 
violate  Section  22  of  Article  IV.  of  the  constitution,  forbidding  the  passage 
of  any  special  laws  regulating  county  and  township  affairs.  "It  does  not,"  said 
the  court,  "purport  or  attempt  to  regulate  county  and  township  affairs,  but  the 
sole  object  of  the  act  is  to  provide  means  for  the  assessment  of  property,  and 
it  cannot  be  said  that  by  doing  so  the  Legislature  has  attempted  to  regulate 
the  county  and  township  affairs  of  any  county  or  township  by  a  special  law. 
as  the  act  is  applicable  to  the  whole  State;  and  for  the  purpose  of  facilitating 
and  regulating  assessments,  so  that  they  shall  be  uniform  and  more  satisfac- 
tory than  heretofore,  has  classified  the  counties  of  the  State."  Later,  in  Feb- 
ruary, 1900,  the  court,  in  meeting  the  objection  that  the  law  was  unconstitu- 
tional as  merely  amendatory  of  the  old  law,  held  that  the  law  was  complete 
in  itself,  even  though  it  repealed  by  implication  certain  provisions  of  prior 
laws.  "The  mere  fact  that  portions  of  the  old  law  are  left  in  force,  so  that 
the  statutes  present  the  aspect  of  what  has  been  called  patch-work  legislation. 


•  176  111.  576, 


92  THE   NATIONAL   CIVIC   FEDERATION. 

as  they  undeniably  do,"  says  the  court,  "should  not  render  the  act  void,  if  it- 
can  be  said  that  the  act  is  reasonably  complete  and  sufficient  in  itself  upon 
distinct  branches  of  the  general  subject."^  The  only  section  of  the  law  which 
was  not  sustained  by  the  court  was  that  which  attempted  to  limit  the  aggregate 
amount  of  the  levies  which  might  be  certified  to  the  County  Clerk  by  munici- 
palities in  counties  containing  125,000  or  more  inhabitants  to  five  per  cent.* 

PRACTICAL   OPERATION    OF   LAW    OF    1898. 

DIFFICULTY    OF    INTERPRETATION. 

In  practical  operation,  the  effect  of  the  new  law  has  been  to  complicate 
unnecessarily  the  administration  of  assessment  and  to  add  seriously  to  the 
expenses  attendant  thereon,  without  bringing  any  compensatory  benefits.  What 
the  Supreme  Court  was  pleased  to  call  patch-work  legislation  has  proven  to  be 
of  little  advantage  to  the  individual  taxpayer  or  to  the  State  at  large.  Th« 
new  law  provided,  that  "all  provisions  of  the  general  revenue  law  in  force 
prior  to  the  taking  effect  of  this  act  shall  remain  in  force  and  be  applicable  to 
the  assessment  of  property  and  collection  of  taxes,  except  so  far  as  by  this 
act  it  is  otherwise  expressly  provided."  The  result  is  that  even  yet  the  revenue 
law  of  the  State  is  largely  a  matter  of  conjecture.  While  the  court  has  passed 
upon  certain  provisions  of  the  law,  in  many  instances  it  is  still  uncertain, 
even  to  the  Supervisors  of  Assessments,  what  powers  the  administrative  offi- 
cers can  exercise.  An  illustration  of  this  point  is  to  be  found  in  the  provision 
of  Section  9,  which  requires  the  quadrennial  assessment  of  real  property.  Sec- 
tion 14,  however,  reads  that  "on  or  before  the  first  day  of  June  in  each  year, 
other  than  the  year  of  the  general  assessment,  the  Assessor  shall  determine 
the  amount,  jn  his  opinion,  of  any  change  in  the  value  of  any  tracts  or  lots  or 
lands,  if  any  such  change  has  taken  place  and  is  not  already  entered  in  the 
assessment  books,  determining  such  change  in  value  as  on  the  first  day  of 
April  of  that  year,  and  add  to  or  deduct  from  the  assessment  accordingly,  set- 
ting down  the  amount  of  such  change  in  a  proper  column  in  the  assessment 
books."  This  clause  practically  nullifies  the  provisions  of  Section  9,  and  has 
left  the  power  of  Assessors  in  this  regard  where  they  were  before  the  enact- 
ment of  the  law.  So  that  it  has  been  possible  for  the  Board  of  Assessors  of 
Cook  County,  for  example,  to  reduce  the  value  of  property  returned  many 
millions  of  dollars  in  1900  as  compared  with  1899,  ostensibly  for  the  reason 
that  the  county  would  otherwise  bear  more  than  its  just  proportion  of  the 
burdens  of  the  State." 

A  serious  attempt  was  made  in  the  first  year  of  the  operation  of  the  law 
by  the  County  Treasurers  to  secure  uniformity  through  the  organization  of  a 
State  association  of  County  Assessors  and  Supervisors  ot  Assessments.  This 
organization  now  holds  annual  meetings,  at  which  knotty  problems  of  the  inter- 
pretation to  be  placed  upon  the  law  are  discussed  and  their  solution  suggested. 
I  have  before  me  the  replies  of  the  Treasurers  of  seventy-two  counties  of  the 
State  to  a  series  of  thirty  questions  sent  out  by  the  President,  E.  M.  Burr,  in 
preparation   for  the  annual   meeting  of  the  association   in    1899.     I   shall   take 


'  The  People  vs.  Knoph.  183  111.  410.    Knoph.  vs.  The  People,  185,  111.  20. 

*An  amendment  to  the  law  to  meet  the  objection  of  the  Court  was  passed 
by  the  recent  session  of  the  General  Assembly. 

•Attorney-General  Akin  held  that  the  action  of  the  local  Board  was  illegal 
(in  an  ooinion  to  Board  of  Education). 


NATIONAL   CONFERENCE   ON   TAXATION. 


93 


occasion  to  quote  from  these  answers  in  support  of  some  of  my  conclusions 
upon  the  operation  of  the  act. 

OLD  EVILS    NOT  REMEDIED. 

In  the  second  place,  whatever  radical  defects  were  present  under  the  old 
law,  still  flourish  under  the  new  law.  Nearly  all  the  reports  in  question  testify 
to  the  impossibility  of  reaching  bank  credits,  mortgages,  trust  deeds  and  prom- 
issory notes  by  the  new  methods  of  inquisition.  Among  the  difficulties  encoun- 
tered are  the  following,  which  the  new  law  was  supposed  to  remedy:  'Tai4- 
ure  of  taxpayers  to  list  real  property  fully"  and  "loss  of  memory  in  majority  of 
property  owners;"  "dishonesty  on  the  part  of  the  taxpayers;" 'incompetence 
of  ihe  Assessors."  One  Treasurer  writes  that  the  law  works  well  in  reachmg 
the  "honest  man  of  moderate  means."  Another  says  that  the  new  law  has 
failed  to  make  honest  men  of  knaves.  Among  the  remedies  suggested  are 
amendments:  "To  make  lawyers  and  bankers  answer  questions  propounded 
to  them  by  the  Board  of  Review ;"  and  "to  keep  taxpayers  from  swearing  to 

d n  lies."     One  Treasurer  suggests  that  the  only  method  pj-acticable  is  the 

confiscation  of  all  property  not  listed  and  the  prohibition  of  the  sale  of  property 
at  higher  price  than  listed.  So  that  it  is  fair  to  say  that  the  evidence  of  Illinois 
bears  out  that  in  other  States  to  the  effect  that  the  tax  inquisitions  of  the  most 
stringent  kind  cannot  produce  universality  in  taxation  under  the  general  prop- 
erty system. 

EFFECTIVENESS  OF  ADMINISTRATION    NOT  INCREASED. 

Again,  it  may  be  noted  that  it  is  the  general  opinion  that  the  additional 
machinery  has  not  increased  materially  the  effectiveness  of  administration.  To 
the  inefficiency  of  the  locally  elected  Township  Assessors,  the  Supervisors  in 
large  part  attribute  their  failures.  Most  of  them,  it  is  true,  are  of  the  opinion 
that  the  conditions  could  be  improved  by  assuring  themselves  an  adequate 
salary  and  by  intrusting  to  them  the  appointment  of  the  local  Assessors. 

On  the  other  hand,  many  Treasurers  object  to  the  law  on  the  ground  that 
the  expenses  of  administration  have  been  already  unduly  increased  and  advise 
the  abolition  of  the  Boards  of  Review. 

INSUFFICIENT    REVENUE    OBTAINED. 

But  the  strongest  objection  made  by  the  rural  counties  and  small  cities  has 
"been  in  the  fact  that  the  new  law  has  made  it  impossible  to  raise  revenue  suffi- 
cient to  their  growing  necessities..  The  smaller  cities  have  reached  a  stage 
where  pavements  and  waterworks,  sewers  and  good  lighting  are  considered  as 
essential.  Even  before  the  passage  of  the  new  law,  the  constitutional  limita- 
tion of  five  per  cent,  upon  indebtedness,  coupled  with  the  under-assessment  of 
realty  and  the  practical  escape  of  personality,  had  brought  the  question  of  ade- 
quate revenue  prominently  before  the  people  of  the  smaller  municipalities.  Not 
only  were  they  in  large  part  precluded  from  municipal  ownership,  but  the 
decreasing  limitation  had  raised  the  rates  of  interest  they  were  required  to  pay 
and  rendered  municipal  borrowing  of  any  kind  extremely  expensive. 

In  the  city  of  Chicago,  on  the  other  hand,  owing  to  the  existence  of  over- 
lapping municipal  corporations,  each  with  extensive  powers  of  taxation  and 
indebtedness,  it  had  seemed  expedient  to  the  friends  of  good  government  to 
protect  the  citizens  from  over-taxation  for  local  purposes  by  striking  at  the 
fountain-head,  and  through  the  County  Board  reducing  the  assessed  valuation 
•so  as  to  lower  the  constitutional  and   statutory  limitations   upon  taxation  and 


94  THE   NATIONAL   CIVIC   FEDERATION. 

indebtedness.  This  method  was  one  that  appealed  to  the  individual  taxpayers^ 
and  the  fact  that  the  city  was  thus  able  to  shift  off  a  large  part  of  its  just  bur- 
den of  State  taxation  was  not  considered  by  the  people  of  the  county  to  be  a 
very  forceful  argument  against  it.  When  the  purpose  of  the  proposed  law  of 
1898  appeared  to  be  to  reach  all  property,  it  was  deemed  essential,  out  of  def- 
erence to  the  peculiar  needs  of  the  city  of  Chicago,  to  incorporate  in  the  law 
a  provision  that  the  assessed  valuation  for  "all  purposes  of  taxation,  limitation 
of  taxation,  and  limitation  of  indebtedness  prescribed  in  the  constitution  or  any 
statute"  should  be  one-fifth  of  the  fair  cash  value.  So  that  by  the  act  of  1898, 
the  five  per  cent,  limitation  upon  indebtedness,  based  upon  an  assessed  valua- 
tion which  might  reach,  and  under  the  law  should  always  have  approximated, 
the  real  valuation  of  all  taxable  property,  was  arbitrarily  reduced  to  one  per 
cent,  oi  fair  cash  value.  The  representatives  of  the  counties  down  the  State 
were  led  to  believe  that  as  property  'was  already  being  assessed  at  about  one- 
fifth  valuation,  there  would  be  no  material  change  in  the  operation  of  the 
constitutional  and  statutory  limitations. 

ASSESSMENTS   UNDER  THE  LAW   OF   1898. 

As  a  matter  of  fact,  the  returns  of  the  equalized  assessments  by  the  State 
Board  in  1899  showed  an  increase  over  1898  of  $105,194,083  in  realty  and 
$69,430,475  in  personalty.  Of  this  increase,  however,  Cook  County  was  responsible 
for  $88,057,199  in  realty  and  $43,708,685  in  personalty,  or  for  all  but  about  forty- 
two  millions  of  the  increase.  In  the  counties  outside  Cook,  the  increase  in 
personalty  was  $25,721,792,  while  the  increase  in  realty  was  $17,136,884,  The 
equalized  returns  for  1900  are  equally  significant.  The  decrease  in  personalty 
in  Cook  County  was  $13,450,343,  and  in  the  other  counties  of  the  State,  $14,147,- 
499,  a  result  which  indicates  that  the  increase  in  personalty  in  the  first  year  of 
the  operation  of  the  law  was  in  large  part  due  to  the  fear  engendered  in  the 
minds  of  taxpayers  on  account  of  their  uncertainty  as  to  the  provisions  of  the 
law  and  the  powers  of  its  administrators.  Bankers,  grain  buyers,  and  mortgage 
and  note  brokers,  however,  have  already  learned  to  evade  the  law,  and  we  may 
look  for  an  even  greater  falling  off  in  the  valuation  of  personalty  the  present 
year.  The  assessment  of  realty  in  1900  is  likewise  noteworthy.  In  Cook 
County,  for  the  local  reasons  already  set  forth,  the  equalized  value  of  realty 
after  an  increase  by  the  State  Board  of  no  less  than  $40,924,167,  was  $61,140,888 
less  than  in  1899,  while  in  the  other  counties  of  the  State  the  equalized  returns 
showed  a  decrease  of  $54,627,883 — practically  the  same  as  returned  by  the  local 
boards.  So  that  in  1900,  the  equalized  assessment  of  realty  outside  of  Cook 
County  was  over  thirty-nine  millions  less  than  in  1898.  As  a  result,  we  see  that 
the  total  equalized  assessment  in  the  rural  counties  was  nearly  twenty-six 
millions  less  in  1900  than  in  1898.  These  figures  are  significant  and  show  the 
validity  of  the  complaint  that  has  been  made  by  the  smaller  cities  that  under  the 
new  law  it  is  impossible  for  them  to  raise  revenue  sufficient  to  their  needs, 
under  their  statutory  limitation  upon  annual  taxation  of  two  per  cent.  The 
conditions  that  confronted  them  in  this  direction  prior  to  the  enactment  of  the 
law  of  1898  have  been  aggravated  not  only  by  the  decrease  in  the  amount  of 
assessed  property  subject  to  taxation,  but  also  by  the  fact  that  the  amount  of 
revenue  required  for  current  expenses  is  annually  increasing.  How  seriously 
this  condition  has  affected  the  rural  counties  of  the  State  may  be  shown  by  the 
fact  that  under  the  constitutional  limitation  upon  their  taxing  power  of  75 
cents  on  the  $100  annually,  no  less  than  thirty-nine  of  seventy-three  counties 


NATIONAL   CONFERENCE   ON   TAXATION.  95 

which  reported  on  this  subject  had  deficits  in  1899  ranging  from  $500  to 
$50,000.*  The  annual  convention  of  Supervisors,  County  Commissioners  and 
County  Clerks  which  met  at  JoHet  in  February  of  the  present  year  condemned 
the  system,  manner  and  form  of  the  execution  and  enforcement  of  the  revenue 
law  of  1898  and  passed  resolutions  urging  the  General  Assembly  to  so  revise 
the  law  as  to  enable  the  counties  to  get  sufficient  revenue  to  meet  their  current 
expenses. 

UNIFORMITY   IMPRACTICABLE 

This  incomplete  summary  of  the  operation  of  the  act  of  1898  simply  goes 
to  verify  the  evidence  of  the  Tax  Commissions  of  Ohio,  Wisconsin  and  other 
States,  to  the  effect  that  the  general  property  tax  must  utterly  fail  in  a  com- 
monwealth, where  the  industrial  conditions  are  as  advanced  as  in  Illinois,  10 
attain  that  uniformity  which  lies  at  its  theoretical  foundation.  Experience  tends 
to  confirm  the  impression  that  the  revenue  law  of  1898  may  be  looked  upon  as 
a  last  vain  attempt  to  bring  the  city  of  Chicago  and  the  rural  districts  of  the 
State  under  the  same  cast-iron  regulations  in  the  assessment  and  collection  of 
taxes.  The  tremendous  differences  existing  in  industrial,  social  and  political 
conditions,  as  well  as  in  the  organization  of  governmental  agencies,  render  such 
uniformity  not  only  impracticable,  but  undesirable.  The  people  of  Cook  County 
are  willing  to  pay  their  proportion  of  State  taxation,  but  refuse  to  submit  to 
exorbitant  local  taxation  for  the  mere  purpose  of  paying  their  just  debt  to  the 
State.  On  the  other  hand,  the  people  of  the  rural  counties  are  appalled  by  the 
unjust  proportion  of  State  taxes  placed  upon  their  shoulders,  and  disgusted  to 
find  that  all  their  efforts  to  attain  a  correct  and  scientific  management  of  their 
local  finances  are  brought  to  naught  by  provisions  inserted  for  no  other  pur- 
pose than  that  of  saving  the  people  of  Chicago  from  the  extravagance  of  their 
own  officials. 

THE   REMEDY. 

You  ask  the  remedy.  The  problem  is  too  serious  to  be  solved  hastily  or 
without  due  deliberation.  What  is  needed  first  of  all  is  a  candid  recognition 
of  the  gravity  of  the  situation.  Some  have  proposed  a  readjustment  upon  the 
basis  of  the  Horton  law  of  New  York,  but  in  all  probability  such  a  statute 
would  not  conform  to  the  constitutional  requirements  in  Illinois.  My  own 
opinion  is  that  the  sources  of  direct  State  revenue  should  be  increased  by  the 
further  development  of  corporation  and  inheritance  taxes,  so  as  to  provide 
sufficient  revenue  for  the  State  government,  and  that  the  principle  of  local 
option  should  be  applied  to  the  various  counties.  What  is  needed  at  once  is 
a  tax  commission  to  investigate  the  conditions,  to  formulate  the  evidence,  and 
to  make  recommendations  to  the  General  Assembly.  It  was  confidently  hoped 
in  many  quarters  that  provisions  would  be  made  for  such  a  commission  at  the 
late  session  of  the  General  Assembly,  and  a  resolution  in  favor  of  such  action 
was  adopted  by  the  convention  of  Supervisors,  County  Commissioners  and 
County  Clerks  at  Joliet,  in  February  of  this  year.  Owing,  however,  to  the 
many  other  important  items  of  business  before  the  Legislature,  little  attention 
was  paid  to  the  subject  of  taxation  and  only  one  or  two  minor  amendments  to 
the  previous  law  were  passed. 


•  Report  of  Mr.  Hubbard,  of  Green  County,  in  "Proceedings  of  Convention 
of  Supervisors,  County  Commissioners  and  County  Clerks,"  1901,  p.  32. 


.96  THE   NATIONAL   CIVIC   FEDERATION. 

Conclusion 

A  citizen  of  Illinois  feels  constrained  to  apologize  for  the  crudity  of  our 
•so-called  system  of  general  taxation.  In  support  of  this  apology,  I  may  say 
that  our  apathy  has  in  large  part  been  due  to  our  extraordinary  resources  and 
increasing  prosperity.  Illinois  is  an  imperial  State  and  her  citizens  have  been 
Tiusy  the  past  decade  in  developing  her  wealth  and  extending  her  influence. 
But  the  time  is  fast  approaching  when  we  shall  realize  many  of  the  defects  in 
our  administrative  system,  and  then  we  confidently  hope  to  take  the  lead  among 
American  commonwealths  in  bringing  about  justice  and  uniformity  in  taxation 
and  the  highest  efficiency  in  every  department  of  State  and  local  administration. 

Mr.  Crandon,  of  Illinois :  Mr.  Chairman,  I  want  to  invite  the  attention  of 
the  Conference  to  a  curiosity  which  will  be  bettter  appreciated  now  than  at  any 
other  time.  The  system  of  revenue  and  revenue  law  of  Indiana,  as  it  was 
brought  to  our  attention  by  my  friend  is,  except  in  unimportant  particulars, 
exceedingly  unimportant  particulars,  the  precise  law  that  is  in  existence  in 
Illinois.  In  one  case  it  works  out  a  paradise,  and  in  the  other  case — quite  the 
reverse. 

Mr.  Hubbard,  of  West  Virginia :  Mr.  Chairman,  there  has  been  upon  our 
statute  books  partically  the  same  system  that  our  friend  from  Indiana  so  graph- 
ically painted.  I  wish  I  had  with  me  a  sample  of  the  assessment  list  Which  the 
laws  requires  the  Assessor  to  hand  to  every  citizen  to  be  returned  b}'  him  under 
oath.  I  hope  my  reputation  for  veracity  will  not  be  very  seriously  impaired 
when  I  tell  you  that  every  taxpayer  in  West  Virginia  is  called  upon  by  that 
paper  and  by  the  law  to  state  the  number  of  wagons  and  carryalls  he  owns  and 
their  value,  the  number  of  watches  and  clocks  he  owns  and  their  value,  and  we 
have  the  Boards  of  Revenue  under  another  name,  and  we  have  State  Boards 
under  another  name,  and  the  upshot  of  it  all  is,  gentlemen,  that  five  of  us  have 
been  appointed  under  the  Legislature  of  the  State  by  the  Governor  to  come 
here  and  be  instructed  as  to  some  better  method.  The  machine  is  worn  out; 
it  had  run  down.  I  have  no  doubt  the  Indiana  system  works  well  for  a  time, 
but  as  people  become  accustomed  to  it,  as  human  nature  resumes  its  sway,  as 
it  will  in  Indiana,  as  the  officers  directed  by  law  to  do  certain  things  fail  to  do 
them,  as  the  Assessors  out  of  personal  friendship  excuse  this,  man  and  that 
man  from  making  the  oath  which  the  law  requires  the  Assessors  to  exact,  and 
I  need  not  go  on  with  the  catalogue,  but  as  the  whole  system  depends  upon  a 
man  carrying  out  and  doing  things  which  he  is  unwilling  to  do  because  it  is 
at  the  risk  of  his  popularity,  then  we  have  another  trouble.  I  would  like  to 
ask  our  friend  from  Indiana  whether  the  State  and  county  under  the  law  get 
their  revenue  from  the  same  sources? 

Mr.  Rogers:     They  do;  yes,  sir. 

Mr.  Hubbard:  We  find  this  in  West  Virginia,  and  it  is  the  most  crying 
evil  we  have  under  a  system  which  seems  to  us  to  be  identical  with  the  Indiana 
system.  In  one  county  the  Assessor  may  be  disposed  to  return  the  real  estate 
of  the  county  at  a  reasonable  and  fair  valuation,  but  he  knows,  as  a  matter 
of  fact,  it  will  not  be  done  in  other  counties,  and,  as  a  matter  of  fact,  it  is 
not  done.  The  result  is  that  he  will  not,  that  he  cannot  in  justice,  return 
an  assessment  of  the  property  of  his  county  at  a  proper  valuation,  because 
if  he  does,  not  only  will  the  citizens  of  his  county  have  to  pay  their  full  share 
of  the  taxes,  but  they  will  have  to  pay  the  share  that  the  citizens  of  other 
counties  ought  to  pay.  The  Assessor  of  every  county  is  afraid  that  the  Assessor 
of  every  other  county   will   do  just  that  thing.     Public   sentiment,   aye,   more 


NATIONAL   CONFERENCE   ON    TAXATION.  97 

than  that,  a  sentiment  of  justice  compels  him  to  put  down  the  valuation  of 
the  property,  the  real  estate  of  his  county,  below  what  it  ought  to  be.  There 
have  been  devised  from  time  to  time  different  methods  of  curing  that.  Boards 
of  Revenue,  State  Commissions,  Boards  of  Public  Works,  sometimes  citizens 
selected  for  the  purpose,  men  of  capacity  and  integrity,  men  of  high  standing, 
sometimes  Boards. composed  of  State  oflficers,  but  the  result  is  always  the  same. 
There  is  as  much  controversy,  as  much  objection,  as  much  grumbling  about  the 
work  when  the  Board  of  Revenue  has  passed  upon  it  as  when  it  came  to  the 
Board  of  Revenue  from  the  hands  of  the  Assessors.    I  fear  my  time  has  expired. 

The  Chairman:  The  Chair  regrets  to  say  that  the  gentleman's  time  has 
expired. 

Mr.  Hubbard:     May  I  be  permitted  to  ask  one  further  question? 

The  Chairman:     If  there  is  no  objection. 

Mr.  Hubbard:  I  would  be  glad  to  know  from  our  Indiana  friends 
whether  in  their  system  there  is  any  special  provision  for  ascertaining  the 
value  of  oil  or  natural  gas.  I  would  be  glad  if  some  gentleman  would  be 
given  the  time  to  explain  that  because  the  question  before  us  is  a  practical  one. 

The  Chairman  :  The  Chair  begs  to  make  this  one  suggestion :  We  have 
one  other  paper  we  desire  to  hear  this  morning.  While  it  is  almost  the 
ordinary  adjourning  time  it  seems  wiser  to  hasten  along  with  some  of  these 
papers  and  get  them  before  the  assembly.  The  Chair  will  now  introduce 
Mr.  Hines,  of  Kentucky,  who  will  speak  to  us  on  the  relation  of  railroadfi 
and  other  public  corporations  to  the  question  of  taxation. 

RAILROADS   AND    OTHER    PUBLIC    SERVICE    CORPORATIONS    IN 
THEIR  RELATION  TO  TAXATION. 

BY    WALKER    I).    HINKS. 


Gentlemen,  I  will  endeavor  to  be  very  brief  and  to  make  only  a  few  general 
suggestions  which  it  has  occurred  to  me  might  be  of  interest,  in  view  of  the 
various  comments  on  this  subject.  At  the  outset  1  want  to  admit  that  in  my 
opinion  the  title  I  have  suggested  for  my  talk  is  practically  a  misnomer  in  speak- 
ing of  railroads  and  "other  public  service  corporations." 

It  is  very  difficult  to  get  a  definition  which  is  accurate  or  comprehensive 
in  respect  to  what  is  a  public  service  corporation.  It  is  sometimes  assumed 
that  it  is  a  corporation  which  is  performing  some  function  of  the  government 
and  which  in  4)ast  times  it  has  been  the  custom  of  the  government  to  perform 
for  itself.  This  obviously,  however,  is  not  a  correct  definition,  because  many 
corporations  which  are  classed  among  these  quasi-public  corporations  are  per- 
forming functions  which  no  government  has  ever  performed.  Take  the  most 
prominent  of  all  these  corporations,  the  railroad  companies,  and  they  are  per- 
forming a  function  which  no  government,  with  one  or  two  exceptions,  has 
ever  exclusively  performed;  that  is,  the  function  of  transporting  persons  and 
property  from  one  place  to  another.  It  has  always  been  a  function  of  the 
government  to  provide  highways,  but  it  has  not  been  the  function  of  the 
government  to  provide  the  vehicles  or  the  methods  of  transportation  upon  those 
highways;  at  least,  in  England  and  America.  In  some  of  the  Continental 
countries  a  portion  of  transportation  is  performed  by  the  government,  but  I 
believe  not  all  of  it.     We,  however,  look  for  our  principle  in  these  matters  to 


98  THE    NATIONAL    CIVIC    FEDERATION. 

England,  and  it  has  never  been  the  custom  there.  A  great  many  of  these  other 
so-called  public  service  corporations  may  occur  to  your  mind  where  the  govern- 
ment has  never  attempted  at  all  to  perform  these  functions,  so  that  it  will  not 
suffice  to  say  that  a  public  service  corporation  is  one  performing  a  function  which 
the  government  itself  has  customarily  performed. 

It  has  been  suggested  again  that  a  quasi-public  corporation  is  one  that  has  a 
legal  monopoly ;  that  is,  which  has  an  exclusive  right  to  do  a  thing  granted  to  it 
by  the  State.  That,  of  course,  is  not  a  definition  sufficiently  broad.  It  would  not 
embrace  any  railroad  company  in  the  United  States.  It  might  be  regarded  as 
embracing  some  gas  companies  and  street  railway  companies,  which  have  prac- 
tically exclusive  franchises,  but  they  are  comparatively  very  few. 

The  most  generally  accepted  definition  is  a  corporation  whose  business  is 
affected  with  a  public  use.  When  you  consider  the  growth  of  that  principle 
you  will  find  that  in  the  end  it  may  cover  every  business  in  the  country,  for 
every  business  in  the  country  is  more  or  less  affected  with  a  public  use,  and 
the  public  generally  is  interested  in  the  manner  in  which  it  is  performed.  It 
has  always  been  a  principle  of  the  law  of  England  that  mills,  inns  and  wharves 
were  characters  of  business  affected  with  this  public  use,  and  therefore  business 
of  a  quasi-public  nature,  and  as  such  subject  to  have  their  rates  regulated  by 
law.  On  the  same  principle  the  courts  have  now  settled  that  a  warehouse  for 
grain  is  a  public  service  business ;  a  tobacco  warehouse  is  in  the  same  class, 
and  by  degrees  other  lines  of  business  will  likely  be  brought  into  this  category. 
The  definition  therefore  is  one  that  is  not  very  helpful,  and  with  respect  to 
taxation   especially   is   wholly  misleading. 

Any  theory  of  taxation  which  proceeds  on  the  idea  that  corporations, 
popularly  known  as  quasi-pubHc  corporations,  are  peculiarly  subject  to  taxation 
is  an  incorrect  theory.  These  corporations  which  have  been  regarded  as  affected 
with  a  public  use  are  by  reason  of  that  fact  subject  to  peculiar  regulations 
and  restrictions  for  the  protection  of  the  public.  So  far  as  you  can  make  an 
accurate  distinction  between  such  corporations  and  other  kinds  of  business, 
that  distinction  serves  its  purpose  and  is  exhausted  when  you  make  the  additional 
regulations  to  which  such  corporations  are  subject.  When  you  do  that  there 
still  remains  in  those  corporations  a  private  element ;  the  owners  of  those 
properties  are  private  persons ;  their  interests  in  those  corporations  are  private 
interests,  and  when  you  tax  those  corporations  you  are  taxing  the  private 
interests  of  the  persons  who  own  them.  So  that,  even  if  there  were  a  well- 
defined  distinction  between  the  so-called  public  service  corporations  and  others, 
it  is  not  a  distinction  which  would  warrant  a  difference  in  taxation,  although 
in  some  States,  and  particularly  in  my  State,  the  distinction  has  been  made 
the  pretext  for  additional  burdens  upon  the  so-called  public  service  corporations. 
The  idea  that  I  wish  to  suggest,  therefore,  is  that  in  any  scheme  of  taxation 
you  should  regard  a  railroad  company,  or  a  street  railroad  company,  or  any 
such  company  as  simply  one  form  of  business,  and  tax  it  on  the  same  principle 
that  you  tax  every  other  form  of  business,  for  in  the  long  run  you  are  doing 
exactly  the  same  thing  in  each  case,  and  that  is,  you  are  taxing  the  strictly 
private  interest  which  the  owner  of  the  property  has  in  it.  The  public  character 
of  the  business  has  been  recognized  and  utilized  to  its  limit  when  you  have 
subjected  its  management  to  special  regulations  and  restrictions.  Indeed,  if 
there  were  to  be  a  difference  in  the  amount  of  taxation  it  ought  apparently  to 
be  in  favor  of  these  corporations  subjected  to  these  additional  restrictions  in  the 


NATIONAL   CONFERENCE   ON    TAXATION. 


99 


interest  of  the  public  rather  than  against  them,  but  I  do  not  ask  for  that ;  I 
ask  that  that  be  treated  exactly  like  other  lines  of  business  when  it  comes  to 
taxation. 

As  a  matter  of  fact  these  so-called  public  service  corporations  are  not,  as 
a  rule,  given  this  equal  treatment.  I  know  it  is  the  case  in  some  of  the  States, 
with  which  I  am  more  particularly  acquainted,  that  when  they  come  to  assess 
the  property  of  a  railroad  corporation  they  do  not  look  merely  at  the  tangible 
property,  but  they  assess  the  value  of  the  railroad  company's  business.  When 
they  come  to  assess  the  "value  of  some  other  corporation  or  some  individual 
who  is  engaged  in  an  extensive  and  profitable  business  they  assess  merely  the 
value  of  his  tangible  property  and  not  the  value  of  his  business  at  all.  My  idea 
is  that  in  both  instances  it  would  probably  be  better  to  tax  the  value  of  the 
business;. but  do  not  tax  the  value  of  the  business  of  the  railroad  company  and 
let  off  so-called  private  corporations,  which  make  a  great  deal  more  money 
on  their  investment,  with  a  simple  tax  on  their  visible  property. 

As  an  illustration  of  how  the  discrimination  works  under  the  ordinary 
system,  I  refer  to  the  results  in  Indiana  and  Illinois  about  whose  tax  systems 
you  have  just  heard.  They  have  a  way  of  valuing  railroad  property  by  looking 
to  the  value  of  its  business  when  they  do  not  do  that  in  respect  to  other 
lines  of  business.  In  recent  years  the  railroad  company  with  which  I  am 
connected — the  Louisville  and  Nashville  Railroad  Company — has  paid  in 
taxes  to  the  State  of  Indiana  as  much  as  ^3  1-3  per  cent,  of  its  net  earnings 
on  the  business  in  the  State,  including  the  mileage  proportion  of  inter-State 
commerce.  At  this  time  in  both  Illinois  and  Indiana  it  is  paying  twenty  per 
cent,  of  its  net  earnings  in  taxes.  I  use  the  term  net  earnings  in  its  ordinary 
traffic  sense,  without  any  deduction  for  taxes  or  extraordinary  expenses,  so 
that,  in  fact,  the  tax  is  really  a  larger  per  cent,  of  the  actual  net  income,  even 
counting  interest  on  bonded  debt  as  a  part  of  net  income.  I  venture  to  say 
other  lines  of  business  do  not  begin  in  those  States  to  pay  a  half  or  a  fourth 
as  much  in  proportion  to  their  net  income. 

This  discrimination  is  simply  the  result  of  the  fact  that  when  they  come 
to  value  the  property  of  the  railroad  company  they  look  at  its  business  and 
assess  according  to  the  returns  from  the  business,  and  fail  to  apply  the  same 
principle  to  corporations  and  individuals  engaged  in  lines  of  business  which 
are  probably  more  profitable. 

Now,  just  one  other  suggestion.  Mr.  Judson  made  the  suggestion,  in 
response  to  a  comment  by  me,  that  he  did  not  think  the  capitalization  of  the 
net  income  of  a  railroad  at  six  per  cent,  would  amount  to  an  income  tax,  and 
cited  an  instance  of  capitalizing  the  rental  value  of  a  piece  of  land  and  taking 
that  as  its  value.  I  wish  to  suggest  this  illustration  which  I  think  will  show 
what  I  had  in  mind.  Take  a  farm  of  a  hundred  acres  which  will  rent  for 
six  dollars  an  acre,  or  six  hundred  dollars  for  the  farm.  Now,  it  may  very 
well  be  said  you  should  capitalize  that  at  six  per  cent.,  and  the  resulting  value 
of  ten  thousand  dollars  would  be  the  value  of  the  farm.  But  suppose  that 
farm  is  in  the  hands  of  an  intelligent  owner,  and  suppose  he  makes  twelve  or 
even  eighteen  dollars  an  acre ;  clearly  you  would  not  capitalize  that  income  and 
ly  that  the  farm  was  worth  twenty  or  thirty  thousand  dollars  for  the  purpose 
of  taxation,  and  yet  you  do  that  in  the  case  of  the  railroad  company.  You 
do  not  take  the  rental  value  of  the  property,  but  you  take  its  total  net  income, 
resulting,  not  merely  from  that  value,  but  from  an  intelligent  management  by 


loo  THE   NATIONAL   CIVIC   FEDERATION. 

its  owners  and  the  agents  they  select,  and  you  capitaUze  their  energy  and  their 
ability  and  their  foresight,  and  the  prosperous  conditions  of  the  country,  and 
you  call  all  that  a  part  of  the  value  of  the  corporation's  property.  Now,  I  say, 
when  you  do  capitalize  the  skill  with  which  a  business  is  conducted  you  are 
imposing  a  tax  upon  the  income  from  that  business.  If  you  tax  the  mere 
rent  value  you  are,  perhaps,  taxing  only  the  value  of  the  property.  The  effect 
is  that  in  most  States  now,  in  one  way  or  the  other,  without  anything  on  the 
statute  books  to  that  effect,  income  taxes  are  laid  on  the  railroad  companies 
and  probably  other  so-called  public  service  corporations.  While  it  might  be 
idle  to  attempt  to  break  down  a  system  of  that  sort  or  to  prevent  its  spreading 
I  insist  that  for  purposes  of  taxation  there  is  no  distinction  whatever  between  a 
so-called  public  service  corporation  and  any  other  line  of  business;  that  you 
should  treat  them  all  alike,  tax  the  business  of  all  according  to  results,  it  may 
be,  but  treat  all  according  to  the  same  rule. 

I  am  very  much  obliged  to  you,  gentlemen. 

A  Member:  I  was  going  to  ask  a  question  and  perhaps  say  a  word,  but  as 
it  is  late  the  Conference  may  wish  to  adjourn. 

The  Chairman:  The  Chair  will  suggest  that  as  it  is  our  lunch  time  all 
questions  be  propounded  upon  our  reassembling.  Before  adjournment  I  would 
say  if  any  gentlemen  have  resolutions  they  desire  to  offer  they  should  present 
them  to  the  Chairman  of  the  Executive  Committee,  who  already  has  certain 
resolutions,  and  that  committee  will  meet  during  the  noon  hour  and  see  if 
possibly  they  can  make  a  report  upon  returning  to  the  Conference  later. 

The  report  of  the  Committee  on  Publication  will  now  be  made. 

Mr.  Mather  :  Mr.  Chairman,  your  committee  has  determined  on  the  publi- 
cation of  the  proceedings  of  this  Conference  in  the  form  of  a  pamphlet,  to  be 
published  under  the  direction  and  supervision  of  the  Secretary  of  the  National 
Civic  Federation.  The  purpose  is  to  supply  ten  thousand  copies  of  the  pamphlet 
for  distribution  throughout  the  country,  especially  to  the  newspapers.  Recog- 
nizing the  fact  that  this  is  purely  a  voluntary  gathering,  that  it  has  no  means 
of  defraying  the  cost  of  its  publication,  the  committee  has. .  recommended  and 
has  drawn  up  a  subscription  paper,  and  begs  to  suggest  to  the  members  of  the 
Conference  that  all  who  feel  able  to  subscribe  and  are  sufficiently  interested  to 
subscribe  toward  defraying  the  cost  of  this  publication  will  find  that  subscript 
tion  paper  in  the  hands  of  Mr.  Easley,  the  Secretary.  It  is  the  hope  of  the 
committee  that  all  who  are  interested  in  this  subject  will  contribute  to  the 
extent  of  their  ability  to  pay,  which,  as  I  understand,  is  the  accepted  basis  of 
taxation,  and  that  the  amount  estimated  to  be  necessary  will  be  raised  here. 
It  is  the  estimate  of  the  Secretary  of  the  Federation  that  it  will  cost  in  the 
neighborhood  of  twenty-five  hundred  dollars  to  print  and  distribute  this  publica- 
tion. 

Mr.  Judson  :  Mr.  Chairman,  I  move  that  the  report  of  the  committee  be 
accepted  and  adopted. 

The  motion  was  seconded,  and  the  question  being  put,  by  the  Chairman, 
the  motion  was  unanimously  carried. 

The  Chairman  :    The  discussions  this  afternoon  will  be  primarily  upon 
the  question  of  separation  of  local  and  State  taxation.     It  is  expected  that  those 
papers  will  complete  the  meeting  of  the  Conference  by  this  afternoon's  session, . 
and  if  it  is  agreeable  we  will  now  adjourn  until  half-past  two  this  afternoon. 

The  Conference  then  adjourned  until  half-past  two. 


NATIONAL   CONFERENCE   ON    TAXATION.  loi 

AFTERNOON     PROCEEDINGS,     MAY     24,     1901 

Chairman  Judson  called  the  Conference  to  order  at  half-past  two. 

The  Chairman  :  The  Chair  will  have  to  ask  the  co-operation  of  those 
present  in  regard  to  the  program  this  afternoon.  The  discussion  will  be 
taken  up  after  the  reading  of  the  papers.  The  first  subject  now  is  the  matter 
of  Local  Option  and  Taxation,  and  the  separation  of  State  and  Local  Revenues, 
and  the  first  paper  on  the  program  will  be  by  Mr.  Westenhaver  of  West  Vir- 
ginia. 

THE  SEPARATION  OF  STATE  AND  LOCAL  REVENUES. 

BY  D.  C.  WESTENHAVER. 


The  present  system  of  State  and  local  taxation  in  the  United  States,  especially 
in  the  southern  part  of  them,  is  an  attempt  to  carry  into  practical  effect  the 
decree  of  Caesar  Augustus,  "that  all  the  world  should  be  taxed." 

That  system  is  the  general  property  tax,  or  tax  on  capital,  in  all  its  unadorned 
crudity.  In  legal  theory,  every  article  of  property,  with  insignificant  exceptions, 
which  a  man  can  own  should  be  listed  and  taxed  at  a  uniform  rate.  In  actual 
practice,  through  evasion,  undervaluation,  and  other  forms  of  tax-dodging,  and 
through  a  want  of  regard  to  the  incidence  and  shifting  of  taxes,  it  has  produced 
a  system  in  which,  to  put  it  mildly,  many  grievious  inequalities  exist,  and  which 
has  broken  down  as  a  producer  of  revenue. 

The  principle  on  which  the  system  is  founded  is  that  every  one  should 
contribute  to  the  support  of  the  State  in  proportion  to  his  ability,  or,  in  other 
words,  make  an  equality  of  sacrifice.  The  mistake  has  been  in  assuming  that 
a  simple  tax  on  property  or  capital  would  produce  the  equality  of  contribution, 
or  of  sacrifice,  which  natural  justice  requires.  To  the  average  man,  that  which 
is  unseen  does  not  exist;  therefore,  such  consequences  as  the  shifting  and  the 
incidence,  or  the'  repercussion  and  the  diffusion  of  taxes,  is  and  has  been  beyond 
the  range  of  vision  of  the  framers  of  tax  laws.  Disregarding  or  denying  the 
existence  and  effect  of  such  economic  laws,  the  legislatures  kave  allowed  the 
superior  resisting  power  of  wealth  to  secure  many  exemptions,  none  the  less  real 
though  unseen,  while  they  have  been  vainly  striving  to  secure  a  complete  listing 
and  a  fair  valuation  of  all  forms  of  property,  or  capital. 

A  suitable  example  of  this  archaic  system  is  that  of  my  own  State  of  West 
Virginia.  As  regards  the  machinery  for  assessing,  and  collecting  taxes,  its  chief 
features  are  nearly  a  century  old,  having  been  inherited  from  the  mother  State; 
as  regards  the  principle,  it  applies  quite  vigorously  the  ancient  notion  that  a 
uniform  rate  on  all  items  of  capital  produces  equality  of  contribution. 

The  State  revenues  are  derived  in  the  main  from  the  general  property 
tax.  Every  form  of  real  property,  and  every  kind  of  personal  property  is 
in  legal  theory  subject  to  taxation.  The  exemptions  are  too  insignificant  to  name, 
except  that  indebtedness  may  be  deducted  from  capital  in  the  form  of  invest- 
ments, not  from  tangible  personalty,  and  that  the  usual  exemptions  are  allowed 
in  favor  of  property  owned  by  religious,  charitable,  and  literary  bodies.  Railway 
property — including  parlor  and  sleeping  cars — while  valued  by  a  State  Board, 
collected  by  State  officers,  and  then  apportioned  to  the  counties,  is  assessed 
not  according  to  the  unit  rule,  nor  by  a  tax  on  gross  receipts,  nor  as  corporation 
stock  at  the  source,  but  as  other  property;  that  is  to  say,  as  so  much  rolling 


I02  THE    NATIONAL    CIVIC    FEDERATION. 

stock,   so  many  miles  of  track,   so  many  buildings,   etc.,   without   regard  to   its 
franchise  vakie. 

The  valuation  as  made  for  State  purposes  is  the  basis  also  on  which  the 
local  subdivisions,  including  municipalities,  assess  and  collect  their  revenues. 
The  subordinate  political  units  have  no  other  source  of  revenue  than  a  levy  on 
this  basis,  except  the  town,  which  may  impose  a  license  tax  in  all  cases  in  which 
the  State  does.  The  same  set  of  officers  value  for  all  purposes,  from  the  school 
districts  and  towns  in  the  counties,  to  the  State  itself,  and  the  same  agent  collects 
for  all,  except  that  the  municipalities  have  a  separate  collector,  and  some  have 
also  a  separate  assessor.  But,  on  the  other  hand,  no  less  than  four  separate 
authorities  have  power  to  levy  taxes,  viz. :  the  Legislature,  the  Boards  of  County 
Commissioners,  the  Boards  of  Education,  and  the  Councils  for  the  towns  and 
cities.  The  aggregate  rate,  therefore,  is  as  infinite  in  variety  as  the  varying  needs 
of  perhaps  a  thousand  political  units  with  power  to  tax  can  make  it.  Thus, 
the  Legislature  puts  on  two  and  a  half  mills  for  State  and  one  mill  for  general 
school  purposes ;  then  the  subordinate  divisions,  one  after  another,  levy  a  rate,  till 
not  infrequently  the  aggregate  exceeds  twenty  mills^  and  in  some  cities,  where 
the  whole  is  cumulated,  it  has  piled  up  as  high  as  thirty-five  mills  on  the  dollar. 

Assuming  that  the  earning  power  of  capital  invested  and  not  employed 
in  active  business  is  only  six  per  cent.,  this  means  a  contribution  from  profits 
of  fifty  per  cent.,  a  most  serious  problem  for  those  who  expect  to  live  some 
day  on  the  earnings  of  their  accumulations.  The  truth  is  that  no  such  rate 
is  assessed  and  collected;  indeed  such  an  exaction  could  not  be  asked  and  got 
without  destroying  the  value  of  property  and  converting  the  community  where  it 
is  done  into  a  desert.  A  system  of  under- valuation  as  to  realty,  and  of  tax- 
dodging  as  to  personalty,  reduces  the  rate  actually  paid  to  something  more 
reasonable,  thereby  saving  the  community  at  the  expense  of  conspicuously  con- 
scientious persons,  who  give  in  all  they  own,  or  helpless  orphans,  lunatics,  and 
others,  whose  property  is  a  matter  of  record. 

There  ^re  two  aspects  of  taxation,  about  which  all  agree.  One  is  that  the 
general  property  tax  as  it  exists  in  West  Virginia  and  in  most  States,  cannot 
be  made  to  produce  more  revenue.  The  rate  is  so  high  and  the  skill  in  dodging 
is  so  well  developed  that  a  small  part  only  of  the  personalty  gets  on  the  tax 
b(Ooks.  It  is  generally  agreed  that  the  mass  of  personalty  in  most  States 
exceed  nowadays  the  value  of  the  realty,  but  it  does  not  so  appear  in  the  assess- 
ment. In  West  Virginia  the  assessed  value  of  the  personalty  is  only  about 
one-third  of  the  realty,  which,  as  compared  with  New  York  and  some  other 
States,  is  a  high  proportion,  and  signifies  that  our  people  have  not  as  yet  fully 
copied  city  methods.  The  aggregate  resources  of  the  banks  in  West  Virginia 
exceed  the  assessed  value  of  the  personalty,  and  in  my  county  town  the  resources 
of  four  banks  alone  exceed  the  assessed  value  of  the  personalty  for  the  whole 
county.  Furthermore,  a  comparison  of  the  percentage  of  increase  in  the  respec- 
tive valuations  of  real  and  personal  property  shows,  contrary  to  the  actual  fact 
and  in  spite  of  the  enormous  increase  of  the  latter,  only  a  slight  increase  in 
the  assessed  value  of  personalty,  while  the  former  has  rapidly  increased.  Thus 
in  New  York  from  1870  to  1895,  the  assessed  value  of  realty  increased  from 
$1,532,720,907  to  $4,811,593,059,  while  in  the  same  period  the  assessed  value  of 
personalty  increased  only  from  $434,280,278  to  $450,490,419.  Mark  the  significance 
of  these  figures !  There  is  as  much  personalty  in  New  York  doubtless  as  in  any 
State  in  the  Union ;  it  has  no  doubt  increased  quite  as  rapidly  there  as  in  any 


NATIONAL   CONFERENCE   ON    TAXATION.  103 

section  of  the  world ;  yet  in  1870  it  is  assessed  at  slightly  more  than  one-fourth 
the  value  of  realty,  and  twenty  years  later  at  less  than  one-tenth.  Moreover, 
all  the  oaths  and  penalties  prescribed  by  law  are  efficient  to  the  extent  of  catching 
only  $215,429,415  of  the  increase  of  twenty-five  years  of  unexampled  production. 
This  apparent  diversion  makes  plain  the  fact  that  tax-dodging  has  become  a 
skilled  science ;  and  that  any  further  increase  of  the  tax  rate  under  a  system 
based  on  the  property  tax  will  fall  on  real  estate,  which  all  will  admit  is  already 
overburdened. 

The  other  aspect  of  the  question  in  which  all  agree  is  that  there  has  been 
an  increasing  need  of  more  revenue  on  the  part  of  the  State  and  of  the  local 
political  units,  and  that  the  tendency  in  this  direction  has  not  exhausted  its  force. 
The  rapid  growth  of  the  budgets  of  State,  counties,  municipalities,  the  increase 
of  their  tax  rates,  and  of  the  bonded  indebtedness,  especially  of  cities,  has  often 
been  commented  on,  and  the  causes  of  it  are  well  understood.  In  a  high-tension 
civilization  new  duties  have  fallen  to  the  State.  The  sphere  of  governmental 
activity  has  been  greatly  and  properly  extended,  and  he  is  a  bold  prophet  who 
would  undertake  to  tell  when  this  phase  of  expansion  will  stop.  But  it  must 
stop  shortly;  indeed,  it  would  have  stopped  already  in  some  States,  except  that 
the  general  property  tax  sy.stem  has  been  greatly  modified,  and  new  sources  of 
indirect  taxation  developed. 

It  seems  to  be  quite  generally  agreed  that  one  of  the  first  steps  necessary 
to  produce  more  revenue,  relieve  the  overburdened  owners  of  real  estate,  and 
redress  the  gross  inequalities  in  taxation  due  to  a  slavish  adherence  to  the  general 
property  tax,  is  a  separation,  more  or  less  complete,  between  the  sources  of  the 
State  and  the  local  revenues.  The  necessities  of  the  situation,  growing  out  of 
the  breakdown  of  the  general  property  tax  system  as  a  producer  of  revenue, 
quite  as  much  as  sound  economic  reasons,  demand  it. 

Several  States  have  brought  about  a  very  considerable  separation.  So  long 
ago  as  1869  Pennsylvania  abandoned  all  taxation  of  real  estate,  leaving  it  exclu- 
sively to  the  local  units,  and  since  then  has  succeeded  in  making  an  almost 
complete  separation  of  the  sources,  for  I  understand  that  even  the  tax  on 
personalty,  which  is  assessed  and  collected  by  county  officials  and  paid  into 
the  State  Treasury  is  derived  from  items  chiefly  different  from  those  the 
counties  and  cities  are  allowed  to  tax  for  local  purposes.  Vermont  and  Delaware 
have  also  both  discarded  real  estate  from  the  State  system  of  taxation.  The 
Comptroller  of  the  State  of  New  York,  in  his  special  report  on  salaries,  taxation, 
and  revenue  in  March,  1886,  strongly  urged  the  introduction  of  independent 
State  taxes,  and  even  so  early  as  1879,  a  recommendation  of  the  same  nature  was 
made  by  the  State  Asses.sors,  Advancing  along  the  line  of  these  reports,  New 
York  has  so  far  got  a  separate  State  system,  that  for  the  year  ending  September 
30,  1900,  $10,704,153.39  only  was  raised  by  the  general  property  tax  on  realty  and 
personalty,  whereas  $13,013,100.06  was  derived  from  indirect  and  independent 
sources.  The  Maryland  Tax  Commission  which  made  it  report  in  1888,  and  the 
Revenue  Committee  of  Illinois  which  made  its  report  in  1886,  both  advanced 
strong  reasons  in  support  of  the  policy  of  .separation.  The  Massachusetts  Tax 
Commission  of  1897  so  framed  the  schemcj  recommended  by  it  as  to  retain 
only  a  small  property  tax  as  a  part  of  the  State  system,  thinking  it  good  policy 
to  retain  some  direct  taxes,  lest  the  State  Legislature  should  imitate  the  extrava- 
gance of  the  Federal  Congress  and  most  other  bodies  which  have  abundant 
revenues  to  dispose  of.  but  the  source  of  which  is  not  plainly  visible  at  all  times. 


104  THE   NATIONAL   CIVIC   FEDERATION. 

Indeed,  it  may  be  set  down  as  the  final  conclusion  of  experts  that  the  State 
should  have  an  independent  separate  revenue.  The  main  question,  of  course, 
is  where  to  draw  the  dividing  line. 

The  central  feature  of  the  reform  seems  to  consist  in  exempting  real  property 
from  State  taxation.  All,  I  think,  will  agree  thus  far,  and  many  sound  reasons 
combine  to  make  it  indispensably  necessary  that  it  should  be  so  relieved.  The 
administrative  difficulties  of  valuing  realty  with  any  degree  of  uniformity  over 
so  large  an  area  as  a  State,  are  so  great  that  no  satisfactory  method  of  doing 
it  has  yet  been  devised.  The  law  may  and,  indeed,  usually  does,  require  that 
the  appraisers  shall  assess  it  at  its  market  or  its  fair  cash  value ;  but  in  practical 
effect  this  language  4ias  never  seemed  to  mean  the  same  thing  to  any  two 
different  Assessors.  Some,  we  find,  regard  the  fair  cash  value  as  the  equivalent 
of  two-thirds  of  its  market  price  sold  on  a  reasonable  credit ;  others  seem  to 
regard  its  market  value  as  the  minimum  price  that  might  be  expected  at  a  forced 
sale  for  cash ;  and  in  either  event  the  doubts  are  resolved  as  may  suit  the  whim 
or  the  prejudice  of  the  individual  Assessor.  Speaking  from  observation  and  after 
some  inquiry,  respecting  the  operation  of  the  law  in  my  own  State,  I  find  that 
the  greatest  conceivable  variations  exist  between  the  different  assessment  units. 
For  example,  an  instance  is  reported  in  West  Virginia  where,  it  is  said,  a  large 
tract  of  land  lying  partly  in  three  separate  counties  and  apparently  of  equal 
value  in  all,  was  assessed  in  one  at  $1.25  an  acre,  in  another  at  $2.75,  and  in  the 
third  at  $7.50.  The  reasons  controlling  the  different  county  Assessors  in  reaching 
these  grossly  unequal  valuations  were  past  finding  out. 

Men  are  usually  honest,  but  temptations  should  not  be  put  in  their  way. 
Under  a  State  system  of  taxation,  where  the  property  tax  is  the  basis,  the 
assessed  value  determines  the  contribution  of  each  political  subdivision  to  the 
State  Treasury;  especially  is  this  true  nowadays,  when  the  greater  part  of 
personalty  is  invisible  and  does  not  figure  in  the  total  assessment.  The  tempta- 
tion, though  unexpressed,  is  nevertheless  strong  to  reduce  the  size  of  this 
contribution  by  the  lowest  respectable  appraisement  of  real  property,  trusting  to 
a  high  tax  rate  to  make  up  the  deficiency  for  local  purposes. 

And  whatever  valuation  is  put  on  realty  by  the  local  appraisers  must  be 
accepted  as  practically  final,  for  it  transcends  human  powers  to  construct  a 
State  Board  of  Appraisers,  or  of  Equalization,  with  sufficient  information  to 
correct  inequalities  as  between  counties.  In  West  Virginia  we  have  the  clumsy 
device  of  a  State  Board  of  Equalization,  which  has  power  only  to  raise  or  to 
reduce  the  valuation  by  a  horizontal  increase  or  reduction  applicable  to  all 
the  property  of  a  county.  Like  the  rains  from  heaven,  this  relief  falls  on 
the  just  and  the  unjust  alike,  but  other  States  have  not  been  able  to  do  much,  if 
any,  better. 

Then,  also,  the  inequalities  in  regard  to  the  taxation  of  real  estate  are 
greatly  increased  by  the  incidence  of  the  tax.  As  regards  some  kinds  of  real 
property,  and  under  proper  conditions,  the  tax  may  be  wholly  or  in  part  shifted, 
and  the  inequalities  produced  by  the  shifting  process  are  likely  to  be  less  in  a 
small  area  than  in  a  large  one.  Under  the  present  conditions  of  holding  or 
farming  agricultural  lands,  the  tax  sticks  where  it  is  first  put,  and  when  once 
paid  cannot  be  passed  on.  The  tax,  as  regards  city  property,  is  generally 
capitalized,  or  shifted  to  the  tenant's  shoulders.  Those  who  buy  city  property 
or  construct  houses  on  city  lots  allow  for  the  tax  in  making  the  investment,  and 
aim  to  secure  the  usual  rate  of  earnings  on  the  capital  invested.     Wherever 


NATIONAL   CONFERENCE   ON    TAXATION.  105 

city  property  is  in  demand,  the  population  growing,  and  the  price  rising,  this 
result  can  and  is  accomplished;  it  is  only  in  decaying  cities,  where  population 
is  decreasing,  and  values  declining,  that  such  a  process  does  not  take  place; 
but  as  the  population  and  the  wealth  of  the  cities  are  growing  at  the  expense  of 
the  country  it  follows  that  the  State  tax  tends  to  produce  very  different  effects 
as  between  classes  or  sections  of  the  same  State. 

Real  estate  from  its  nature  must  and  always  will  bear  a  full  share  of 
taxation;  there  is  no  danger  that  it  will  ever  bear  a  less  share  than  any  other 
form  of  property.  Releasing  it  from  State  taxation  leaves  it  as  the  central 
feature  in  the  tax  budgets  of  counties,  districts,  and  municipalities.  Some  of 
the  inequalities  produced  by  the  incidence  of  the  tax  will  probably  be  diminished 
by  confining  the  operation  of  the  tax  to  a  smaller  area,  but  whether  they  will 
or  not,  certainly  the  temptation  to  undervalue  as  between  counties  will  be 
removed,  and  the  difficulties  of  securing  a  uniform  valuation  will  be  overcome. 
Even  under  the  existing  system  the  greatest  inequalities  are  between  the  different 
assessment  units,  rather  than  between  the  different  parts  in  any  one.  A  man 
reasonably  honest  and  with  a  moderate  sense  of  justice  will  adhere  more  or 
less  closely  to  a  standard  of  official  duty,  which  he  once  fixes  for  himself;  if 
there  are  two  or  more  engaged  at  the  work  in  different  sections  of  the  same 
county  they  can  and  no  doubt  do  familiarize  themselves  with  one  another's 
views;  and  if  they  work  in  subjection  to  a  central  Board  of  Equalization  frequent 
conferences  and  comparison  of  projected  valuations  while  the  work  is  in  progress 
will  secure  substantial  equality.  An  efficient  Board  of  a  few  members  can  in 
a  small  area  readily  be  secured  with  expert  knowledge,  ample  to  effect  this 
purpose,  especially  if  the  Board,  as  well  as  the  law,  insists  on  a  valuation 
at  its  fair  market  value;  for  such  a  Board  with  its  meeting  place  at  the  county 
town  could  have  access  to  the  record  books  showing  the  actual  selling  price  of 
enough  realty  in  all  sections  of  the  assessment  district  to  secure  a  standard. 
A  prime  condition,  however,  is  that  the  value  must  be  the  actual  market  valuQ, 
elsewise  if  abatement  of  a  part  is  allowed  confusion  worse  confounded  follows. 
For  example,  A  owns  a  piece  of  real  estate  worth  $1,000;  B,  a  piece  worth  $10,000, 
and  C,  a  piece  worth  $30,000,  which  it  is  safe  to  assume  are  equally  profitable, 
for  the  value  of  real  estate  is  determined  in  the  end  by  the  capitalization  of 
its  net  profits  at  the  time  of  the  purchase.  If  the  Assessor  adopts  the  arbitrary 
rule  of  taking  two-thirds  of  the  selling  price  as  the  cash  or  market  value,  within 
the  meaning  of  the  law,  then  A  escapes  taxation  on  $333.33  1-3,  B  on  $3,333.33  1-3, 
and  C  on  $10,000.00  of  his  total  property.  The  wealthier  the  man,  the  smaller 
proportionately  is  his  contribution.  Instead  of  being  progressive,  it  is  regressive 
taxation,  and  in  favor  of  the  large  as  against  the  small  property  owner.  And 
this,  I  believe,  is  the  method  usually  prevailing  in  my  State  and  in  other  Southern 
States.  Correcting  this  fatal  defect  in  the  administration,  however,  and  making 
due  allowance  for  the  different  effects  of  the  shifting  process,  substantial  justice 
as  regards  realty  may  be  had  in  an  assessment  unit  of  moderate  size. 

Taxation,  I  think,  should  be  thrown  more  on  the  active  business  of  the 
country,  for  there  the  money  is  being  made,  and  the  burden  diffusing  itself 
with  the  cost  of  production  is  less  felt.  The  tendency  of  indirect  taxes,  however, 
is  toward  shifting  to  such  an  extent  that  they  are  quite  apt  to  become  taxes 
on  consumption,  in  which  event  they  bear  heavily  on  those  the  least  able  to 
pay  them;  and  in  selecting  articles  for  taxation  this  ultimate  effect  should  be 
-carefully    considered.      Still,    direct    taxes    have   become    so    heavy,    and    being 


io6  THE    NATIONAL   CIVIC   FEDERATION. 

demanded  in  a  lump  sum,  at  inconvenient  times,  they  take  on  the  appearance 
of  a  forcible  exaction  of  a  part  of  what  one  regards  as  one's  own,  and  are  paid 
most  grudgingly ;  while,  on  the  other  hand,  indirect  taxes,  falling  on  the  purchaser 
only  when  he  buys  a  taxed  article,  has  the  advantage,  by  no  means  slight  to  the 
average  person,  of  being  paid  in  small  sums,  voluntarily,  and  when  most  con- 
venient. The  need  of  larger  revenues,  however,  makes  it  necessary,  'if  not 
desirable,  to  adopt  indirect  taxation  and  to  throw  it  on  the  active  business 
of  the  country  where  wealth  is  being  created  and  accumulated,  even  at  the  risk 
of  having  it  in  the  end  fall  on  the  consumption  of  the  people,  but  so  far  as 
possible  adopting  such  methods  as  to  avoid  that  result. 

An  examination  of  the  tax  budgets  of  several  States  furnish  valuable  light  in 
this  respect. 

The  largest  item  of  independent  State  revenue  in  West  Virginia,  New 
Jersey,  and  Delaware  is  perhaps  the  license  tax  on  corporations.  I  do  not  wish 
to  be  understood  as  commending  the  practice  of  these  States  in  granting  charters 
to  piratical  corporations,  which  authorize  them  to  prey  on  the  people  of  Alaska, 
Cuba,  the  Philippines,  and  our  sister  States,  but  the  tax  regarded  merely  as  a 
tax  is  wholly  unobjectionable;  it  falls  on  wealth  actively  employed,  and  no 
question  regarding  its  apportionment  to  counties-  or  districts  need  be  considered. 

License  taxes  on  general  occupations  are  not  in  favor;  but  such  taxes  for 
the  privilege  of  selling  malt,  spiritous  and  fermented  liquors  is  a  favorite  source 
of  revenue  to  the  States,  and  in  many  is  the  chief  independent  source  of  State 
revenue.  Few,  if  any,  of  the  States  apportion  them  to  the  counties,  although 
in  many,  as  in  West  Virginia,  the  cities  may  impose  an  additional  tax  for  the 
same  privilege.  To  this  we  see  no  objection;  for  not  only  does  it  not  seriously 
militate  against  the  policy  of  separating  State  and  local  revenues,  but  as  the 
privilege  is  profitable  in  proportion  to  the  size  of  the  city,  it  tends  to  produce 
greater  equality,  if  the  cities  are  also  allowed  to  collect  a  separate  and  additional 
revenue  from  the  same  source.  Some  persons  question  the  propriety  of  appro- 
priating all  the  revenue  from  these  licenses  for  State  purposes;  but,  as  I  have 
already  said,  the  municipalities  have  their  remedy  by  adding  an  extra  license, 
provided  always  the  good  people  are  strong  enough  to  keep  the  saloon  influences 
within  proper  bounds.  The  difficulty  of  .so  doing  renders  it  unsafe  to  trust 
the  handling  of  this  source  of  revenue  to  a  less  powerful  body  than  the  whole 
State.  And  the  moral  aspect  of  the  question  which  a  wise  system  of  taxation 
should  not  disregard,  also  makes  in  favor  of  letting  the  State  take  to  itself  the 
highest  practical  revenue  from  this  source,  as  such  a  system  is  less  apt  to 
discourage  the  local  option  sentiment  than  one  which  apportions  the  revenues 
to  the  counties  or  cities  on  any  basis. 

As  Pennsylvania,  New  York  and  Massachusetts  have  achieved  the  greatest 
measure  of  separation,  their  experience  furnishes  the  most  valuable  practicable 
information  at  present  attainable;  from  their  tax  laws,  then,  we  shall  draw 
our    illustrations. 

For  the  year  ending  November  30,  1899,  the  total  receipts  of  the  Penn- 
sylvania State  Treasury  were  $15,458,316.97.  Of  these  about  one-seventh  ($2,029,- 
038.20)  were  from  license  taxes,  to  none  of  which  any  sound  object  lies,  con- 
sidering them  from  the  view  point  of  taxes  or  of  apportionment  to  the  local 
units,  except  the  mercantile  licenses.  These,  however,  make  up  only  one- 
fourth    ($518,148.65)    of  the  entire  license  taxes. 


NATIONAL   CONFERENCE   ON    TAXATION.  107 

.  The  chief  item,  however,  of  the  budget  is  the  corporation  tax,  which  makes 
up  more  than  two-fifths  of  the  total  ($6,956,326.35).  Under  this  head,  how- 
ever, are  classed  the  tax  on  the  premiums  of  insurance  companies,  on  corpo- 
rate, county  and  municipal  loans,  on  the  gross  receipts  of  transportation  com- 
panies, telegraph,  telephone  and  express  companies,  on  capital  stock  and  some 
minor  subjects.  By  far  the  greater  part  of  the  corporation  tax  is  derived  from 
that  on  capital  stock.  Corporation  stock  is  assessed  at  the  source — that  is,  to 
the  corporation,  and  not  to  the  owner — at  its  fair  market  value,  and  a  uniform 
rate  of  five  mills  on  the  dollar  is  levied  thereon.  The  ease  of  assessment  and 
collection  has  made  this  species  of  taxation  wonderfully  profitable  and,  it  seems, 
reasonably  satisfactory  wherever  tried.  The  gross  receipts  or  tonnage  tax 
owing  to  the  conditions  of  interstate  commerce,  is  not,  and  could,  perhaps,  be 
reformed  to  advantage. 

Taxes  on  bank  stock,  both  State  and  National,  including  trust  companies, 
on  building  and  loan  associations,  both  foreign  and  domestic,  the  taxes  on 
writs,  wills,  deeds,  on  inheritances,  direct  and  collateral,  in  addition  to  those 
items  already  enumerated,  make  up  the  bulk  of  the  State  taxes  of  Pennsylvania ; 
and  all  of  these  are  retained  for  State  purposes,  none  being  apportioned  to  the 
counties;  nothing,  indeed,  paid  into  the  State  Treasury  is  refunded  except  three- 
fourths  of  the  personal  property  tax,  and  except  also  in  so  far  as  the  State 
expenditure  of  more  than  six  millions  on  the  common  schools  throughout  the 
State  may  be  so  regarded. 

On  the  $13,013,100.06  of  revenue  collected  by  the  State  of  New  York  for 
the  year  ending  September  30,  1900,  from  independent  and  separate  sources, 
about  one-fifth  ($2,624,508.05)  was  from  the  tax  on  corporations;  more  than 
a  third  ($4,235,870.25)  from  license  fees  for  the  sale  of  liquors;  and  about 
one-third  ($4,334,803.27)  from  the  tax  on  transfers  of  property.  The  remain- 
der is  made  up  of  small  items  from  a  considerable  number  of  other  sources. 
None  of  these  taxes  are  apportioned  to  the  counties,  but  are  used  for  State 
purposes. 

The  tax  on  transfers,  which  is  a  direct  and  collateral  inheritance  tax. 
requires  a  special  mention.  Whenever  adopted  in  any  State,  it  has  been  seized 
for  exclusive  State  uses.  There  seems  to  be  no  sound  objection  that  can  be 
urged  to  this  tax,  or  to  its  appropriation  by  the  State,  without  apportionment 
to  the  counties. 

As  real  property  is  regarded  as  central  feature  in  a  system  of  local  taxa- 
tion, an  income  tax.  now  that  it  has  been  discarded  by  the  Federal  Government, 
would  in  principle  be  an  admirable  feature  of  the  State  system.  The  objection, 
however,  is  to  the  difficulty  of  assessing  and  collecting  it.  No  State  has  ever 
adopted  an  income  tax ;  indeed,  it  seems  to  be  obnoxious  to  feelings  of  Amer- 
ican citizens ;  and  owing  to  our  inexperience  and  this  hostility,  an  efficient 
income  tax  system  could  be  built  up  and  put  in  force  only  after  years  of  trial. 
But  an  inheritance  and  succession  tax  is  in  effect  an  income  tax;  it  differs 
from  the  latter  chiefly  in  that  it  claims  the  State's  share  in  one  lump,  instead 
of  in  annual  contributions.  Thus,  while  England  has  had  for  several  genera- 
tions an  income  tax,  France  has  never  adopted  it,  finding  its  succession  and 
inheritance  taxes  a  sufficient  and  adequate  substitute. 

Such  a  tax  is  easy  to  collect ;  and  it  has  the  further  advantage  that  the 
machinery  already  in  existence  may  be  readily  adopted  for  its  assessment  and 
collection.     With  a  moderate  exemption  in  favor  of  near  relatives,  even  when 


io8  THE    NATIONAL   CIVIC   FEDERATION. 

direct,  it  imposes  no  burden  which  is  seriously  felt.  All  estates,  sooner  or  later, 
intangible  as  well  as  tangible,  must  pass  through  the  probate  court,  and  become 
subject  to  the  tax.  If,  before  division,  the  State  steps  in  and  takes  off  a  modest 
slice,  the  sufferer  accept  the  residue  with  good  nature,  when  compared  with 
the  complaints  made  against  the  direct  property  tax.  It  is  an  abatement  in 
most  instances  from  that  which  the  beneficiary  did  nothing  to  earn;  he  has 
no  legal  claim,  except  what  is  given  by  law,  for  it  is  conventional  law,  not 
natural  right,  which  determines  what  a  man  shall  do  with  a  part  of  the  earth's 
surface  after  he  can  use  it  no  longer;  the  relative  has  not  even  a  moral  or 
ethical  right  except  in  the  case  of  persons  for  whose  existence  or  present  sit- 
uation the  deceased  is  responsible;  such  as  children,  a  widow,  and  dependent 
parents.  That  the  deceased  has  been  able  to  accumulate  at  all,  or  that  what 
he  gets  around  him  has  any  value,  is  due  to  an. organized  state  of  society,  built 
up  by  the  toil  and  suffering  of  preceding  generations  of  men;  and  in  most 
cases  a  large  part  of  its  value  is  due  to  social  causes,  not  to  the  labor  of  the 
owner;  hence  a  demand  for  a  moderate  part,  or  even  for  all  beyond  a  certain 
degree  of  relationship,  is  not  repugnant  to  natural  justice. 

But  as  effecting  the  question  of  the  separation  of  State  and  local  revenues, 
no  objection  exists  to  allotting  this  sioi.i'ce  exclusively  to  the  State.  In  the 
first  place  "it  takes  nothing  from  the  local  assessment  units  which  they  already 
had.  Furthermore,  its  tendency  is  to  stay  where  it  is  first  put,  and  not  to  shift 
to  the  shoulders  of  others.  And  finally,  not  being  properly  double  taxation  of 
any  form  of  property,  it  does  not  reduce  the  assessment  base  of  any  locality, 
and  the  apparent  equity  of  some  of  the  claims  for  apportionment  to  the  counties 
which  are  made  against  the  exclusive  use  of  other  revenues  do  not  apply  to  it. 

In  Massachusetts,  as  appears  from  the  report  of  the  Tax  Commission  of 
1897,  the  taxes  on  corporations,  on  banks,  savings,  State  and  National,  and  on 
insurance  companies  and  other  sources  usually  called  independent,  make  up 
the  great  bulk  of  the  State  revenue.  For  1896  the  State  revenues  were  $7,293,- 
880,  of  which  less  than  a  fourth  ($1,745,340)  was  derived  from  the  general 
property  tax.  But  in  dealing  with  corporations  the  State  also  appraises  and 
collects  for  the  cities  and  towns  as  well  as  itself  and  then  apportions  among 
them  what  it  does  not  retain  for  its  own  use.  This  practice  as  regards  aggre- 
gation^  of  wealth,  such  as  railroads,  insurance,  express,  telephone,  coal  mining, 
lumber  companies,  etc.,  is  decidedly  advisable,  as  the  strength  ,  and  resisting 
power  of  them  is  such  that  local  units  have  difficulty  in  deaHng  with  them  suc- 
cessfully. For  example,  in  West  Virginia  the  people  found,  after  an  abundance 
of  experience,  that  taxes  could  not  be  collected  at  all  from  the  railway  com- 
panies so  long  as  the  assessment  and  the  collection  were  made  by  the  counties, 
cities  and  districts,  but  since  these  duties  have  been  vested  in  a  State  Board, 
which  assesses,  collects  and  certifies  to  the  local  authorities,  there  has  been  no 
difficulty;  that  they  do  not  pay  so  much  as  other  forms  of  wealth  may  per- 
haps be  true,  but  what  is  assessed  to  them  is  paid  with  the  utmost  promptness. 

This  brings  us  to  the  question  of  whether  or  not  the  State  shall  retain  all, 
or  apportion  to  the  local  units;  and  if  so,  how  much  and  on  what  basis? 
And  this,  it  seems  to  me,  presents  the  greatest  difficulties  of  practical  legisla- 
tion, if  not  of  equality,  involved  in  an  attempt  to  separate  the  State  and  local 
revenues.  It  is  easy  to  separate  the  sources  after  the  Pennsylvania  fashion; 
but  is  it  just  to  all  parts  of  the  State?  If  it  is  not  just  to  retain  all  the  rev- 
enues   from    railway,    general   corporation,    insurance,    or    like    taxes,    on    what 


NATIONAL   CONFERENCE   ON   TAXATION,  109" 

bases  can  the  excess  be  distributed,  or  the  separating  line  in  regard  to  their 
property  be  drawn? 

This  aspect  of  the  question  does  not  seem  to  have  been  much  considered. 
Pennsylvania  and  New  York,  as  a  practical  question,  have  solved  it  in  favor 
of  the  equity  of  keeping  the  whole,  as  if  it  were  not  open  to  question.  Under 
the  Massachusetts  system  certain  deductions  are  allowed  in  assessing  at  the 
source,  the  capital  or  franchise  value  of  the  corporation;  thus  the  real  estate 
and  machinery  are  assessed  separately  by  the  local  authorities,  and  the  market 
value  of  the  stock,  less  the  amount  of  this  assessed  value  of  real  estate  and 
machinery,  is  taken  as  the  value  of  the  corporate  stock  or  franchise.  The  tax 
thus  collected  by  the  State  is  certified  to  the  towns  and  cities  in  which  the 
holders  of  the  stock  reside,  and  the  State  retains  that  proportionate  part  which 
is  represented  by  non-resident  shareholders.  The  commission  of  1897  disap- 
proves this  basis  of  distribution  and  asserts  that  the  benefits  go  largely  to- 
towns  and  cities  in  which  the  owners  reside,  but  which  as  communities  con- 
tribute little  or  nothing  to  the  production  of  the  wealth.  In  their  recommen- 
dations they  advise  that  this  tax  shall  all  be  retained,  and  that  as  a  compensation, 
to  the  counties,  certain  charges  and  expenses  hitherto  borne  by  the  latter  shall 
be  paid  from  the  State  Treasury.  And  the  Commission,  in  recommending  a 
distribution  to  the  towns  and  cities  of  the  inheritance  and  succession  taxes 
provided  for  in  their  report,  makes  no  effort  to  return  it  to  those  from  which 
it  was  paid;  indeed,  even  as  to  realty,  this  commission  does  not  seem  to  have 
thought  there  was  any  special  equity  demanding  such  return.  The  proposed, 
distribution  was  to  have  been  made  one-half  on  the  basis  of  population  and 
one-half  on  the  basis  of  assessed  valuation. 

The  Pennsylvania  Tax  Conference  of  1895  gave  careful  consideration  to- 
many  phases  of  the  tax  question.  In  regard  to  public  service  corporations,, 
especially  railways,  it  Recommended  the  abandonment,  of  the  gross  receipts, 
tonnage  and  capital  stock  taxes,  and  the  substitution  instead  of  a  franchise 
valuation,  based  on  what  has  been  called  the  unit  rule  plan.  Unlike  the  Mas- 
sachusetts plan,  all  real  esate  and  machinery  are  not  deducted  for  separate 
assessment  in  the  cities  and  counties,  but  only  such  real  estate  as  is  not  needed 
for  the  excrices  of  the  franchise.  All  of  the  revenue  thus  gotten,  it  was  rec- 
ommended, should  be  retained  by  the  State.  The  right  of  a  section  netted  with, 
railroads  to  complain  that  it  is  harshly  treated  by  a  reduction  of  its  assessment 
basis,  as  compared  with  one  sparsely  settled,  was  ignored;  the  relinquishment 
to  the  local  subdivisions  of  real  property  freed  from  State  taxes,  it  seems  to- 
have  been  assumed,  is  an  adequate  recompense. 

The  variation  in  the  State  and  local  rates,  however,  makes  the  serious  dif- 
ficulty, especially  in  those  States  which,  like  my  own,"  have  a  constitutional 
provision  that  all  taxation  shall  be  equal  and  uniform.  The  State  rate  on  sub- 
jects of  taxation,  like  those  we  are  considering,  may  be  ten  mills,  but  the  local 
rates  will  vary  and  may  be  eight  in  some  subdivisions  and  twenty  in  others. 
In  giving  to  the  State  exclusively  certain  sources  of  revenue,  legal  rules,  if 
not  substantial  equality,  requires  that  this  difference  in  rates  should  be  kept  in 
view.  For  instance,  in  assessing  corporations,  certainly  those  other  than  rail- 
way corporations,  the  real  estate  and  tangible  personalty  owned  by  them,  and 
of  the  same  general  nature  as  that  owned  by  individuals  and  subject  to  local" 
taxation  should,  as  in  Massachusetts,  be  deducted  from  the  assessment  valua- 


no  THE   NATIONAL   CIVIC    FEDERATION. 

tion  for  State  purposes;  otherwise,  inequality  as  between  the  same  classes  of 
property  may  be  produced  and  the  assessment  basis  of  the  local  bodies  unduly 
diminished. 

Subject  to  this  qualification,  legislative  practice  and  sound  reason  approve 
the  methods  adopted  for  separating  the  sources  of  State  and  local  revenue. 

And  finally,  it  may  not  be  amiss  to  add  that  the  welfare  of  the  State  as  a 
whole  is  the  welfare  of  each  individual.  If  taxation  is  not  cumulated  and  piled 
up  against  any  special  class  of  persons  or  form  of  property ;  if  the  most  profit- 
able employments  for  capital  do  not  escape  a  fair  share  of  the  burden,  and 
throw  the  whole  on  the  fixed  capital  of  others,  or  on  the  consumption  of 
the  poor,  minor  inequalities  may  well  be  disregarded.  The  contribution  from 
each  member  to  the  common  fund  in  the  form  of  taxation,  as  has  been  well 
said,  is  not  merely  an  equivalent  paid  for  protection  either  to  person  or  to 
property.  The  general  public,  through  the  organized  agencies  of  society,  is  a 
silent  partner  in  all  forms  of  production.  How  much  property  could  be  accu- 
mulated if  governments  did  not  exist?  How  much  would  one's  property  be 
worth  except  for  the  organized  social  state?  The  debt  we  all  owe  to  it  is 
incalculable,  and  a  cheerful  contribution  of  a  part  of  what  it  enables  us  to  save 
and  control,  and  to  which  it  gives  the  chief  value,  is  a  small  return  on  our 
part.  That  just  taxation  is  not  robbery,  but  only  a  proper  division  with  the 
other  partner,  was  most  aptly  put  by  Professor  Huxley  in  the  following  lan- 
guage, and  with  it  I  shall  conclude :  "I  cannot,"  says  the  professor,  "speak  of 
my  own  knowledge,  but  I  have  reason  to  believe  that  I  came  into  this  world 
a  small,  reddish  person,  certainly  without  a  gold  spoon  in  my  mouth,  and, 
in  fact,  with  no  discernible  abstract  or  concrete  'rights'  or  property  of  any 
description.  If  a  foot  was  not  at  once  set  upon  me  as  a  squalling  nuisance, 
it  was  either  the  natural  affections  of  those  about  me,  which  I  certainly 
had  done  nothing  to  deserve,  or  the  fear  of  the  law,  which,  ages  before 
my  birth,  was  painfully  built  up  by  the  society  into  which  I  intruded,  that 
prevented  that  catastrophe.  If  I  was  nourished,  cared  for,  taught,  saved  from 
the  vagabondage  of  a  wastrel,  I  certainly  am  not  aware  that  I  did  anything  to 
deserve  those  advantages.  And,  if  I  possess  anything  now,  it  strikes  me  that, 
though  I  may  have  fairly  earned  by  day's  wages  for  my  day's  work,  and  may 
justly  call  them  my  property,  yet,  without  that  organization  of  society,  created 
out  of  the  toil  and  blood  of  long  generations  before  my  time,  I  should  prob- 
ably have  had  nothing  but  a  flint  axe  and  an  indifferent  hut  to  call  my  own ; 
and  even  those  would  be  mine  only  so  long  as  no  stronger  savage  came  my 
way.  So,  that  if  society  having — quite  gratuitously — done  all  these  things  for 
me,  asks  me  in  turn  to  do  something  toward  its  preservation,  *  *  *  j  really, 
in  spite  of  all  my  individualist  leanings,  feel  rather  ashamed  to  say  no.  And 
if  I  were  not  ashamed,  I  cannot  say  that  I  think  that  society  would  be  dealing 
unjustly  with  me  in  converting  the  moral  obligation  into  a  legal  one.  There 
is  a  manifest  unfairness  in  letting  all  the  burden  be  borne  by  the  willing  horse." 

The  Chairman:  Gentlemen,  the  same  general  subject  will  be  presented 
by  Hon,  James  W.  ^ucklin,  who  will  speak  of  the  adoption  of  certain  features 
of  the  Australian  tax  system  in  Colorado. 

Mr.  Bucklin  :  I  was  much  interested  this  morning  in  the  bright  antici- 
pation which  the  Indiana  law  seems  to  have  inspired  in  the  breasts  of  the 
delegates  from  that  State,  because  for  the  past  twenty-five  years  the  State  of 
Colorado  has  had  in  operation  substantially  the  same  constitutional  and  statu- 


NATIONAL   CONFERENCE   ON    TAXATION.  ,ii 

tory  provisions  as  those  of  the  Indiana  law ;  and  so  thoroughly  and  so  abso- 
lutely has  the  law  broken  down  in  our  State  that  there  are  none  so  poor  a;^ 
to  do  it  reverence. 

THE    AUSTRALASIAN    TAX    SYSTEM    IN    THE    ANTIPODES    AND 

IN   COLORADO. 

BY    HON.    JAMES   W,    BUCKLIN. 


Our  present  method  of  Stat-e  and  municipal  taxation  has  no  friends,  at 
least  no  friends  who  defend  it  upon  equitable  grounds.  We  agree  that  our 
existing  tax  laws  are  bad,  but  when  we  consider  how  to  cure  such  evils, 
whether  there  be  any  rational  or  defensible  tax  system,  then  public  sentiment 
is  utterly  chaotic. 

PASSAGE   OF   COLORADO    AMENDMENT. 

It  was  owing  to  such  conditions,  to  an  urgent  need  of  more  revenue,  and 
to  the  most  persistent  efforts  for  tax  reform  in  two  sessions  of  the  Legisla- 
ture, that  the  Senate  of  the  State  of  Colorado  in  1899  appointed  a  Revenue 
Commission  to  investigate  and  report  upon  the  tax  laws  of  the  several  Amer- 
ican States  and  of  New  Zealand  and  Australia,  and,  so  far  as  possible,  discover 
a  just,  wise  and  complete  remedy.  As  chairman  of  that  committee  it  was  my 
fortune  to  visit  the  Australasian  colonies  and  to  prepare  the  report  to  the 
Legislature.  The  report  proposed  a  constitutional  amendment,  which  was 
endorsed  by  the  two  principal  daily  papers  of  Denver  and  by  many  of  our 
most  prominent  statesmen,  lawyers  and  business  men.  Concerning  such  report 
and  the  recommendations  thereunder.  Governor  Thomas,  one  of  the  ablest 
orators  and  statesmen  of  the  West,  in  his  biennial  message  to  the  Legislature 
said: 

"The  Senate  at  its  last  session  appointed  a  Revenue  Commission,  consist- 
ing of  three  of  its  own  members,  to  investigate  and  report  upon  the  State  and 
local  revenue  laws,  and  also  upon  those  of  New  Zealand  and  Australia,  together 
with  recommendations  for  systematizing,  revising  and  amending  our  system  of 
taxation,  including  the  constitutional  provisions  relating  to  the  subject.  The 
Chairman,  in  pursuance  of  his  duties,  visited  the  distant  colonies  included  in 
the  resolution,  and  reported  the  results  of  his  inquiry  to  the  Commission,  which, 
together  with  that  of  the  Commission  itself,  will  be  submitted  to  you.  It  is  a 
complete  and  exhaustive  document,  replete  with  information,  argument  and  rec- 
ommendations. It  should  receive  the  earnest  and  thoughtful  consideration  of 
every  member  of  this  assembly,  and  its  conclusions  should  be  carefully  weighed. 
We  must  not  forget  that  Australia  has  been  a  land  of  novel  but  successful  experi- 
ments in  both  economics  and  legislation,  conducted  under  the  intelligent  con- 
servatism of  an  Anglo-Saxon  population,  many  of  which  have  been  adopted 
in  America.  If  it  be  true  that  the  .system  of  taxation  there  in  operation  has 
proven  successful,  then  it  has  ceased  to  be  an  experiment  and  its  recognition 
here  can  be  safely  accomplished.  To  eflfectuate  this,  however,  a  change  in  our 
organic  act  is  essential,  and  that  requires  time.  This  the  commission  has  rec- 
ognized, and  while  its  members  differ  as  to  some  of  the  conclusions  of  the 
majority,    all    unite    in    recommending    the    submission    of    the    three    proposed 


112  THE   NATIONAL   CIVIC   FEDERATION. 

amendments  to  Article  X.  of  the  constitution,  to  the  vote  of  the  people,  in' 
conformity  with  the  terms  of  that  instrument.  I  cordially  endorse  the  rec- 
ommendations. A  perfect  system  of  taxation  has  up  to  this  time  been  a  prob- 
lem insoluble  as  the  riddle  of  the  Sphinx;  let  the  people  say  by  their  suffrages 
whether  the  change  proposed  may  not  be  effective.  If  they  want  it,  then  you 
as  their  servants  should  give  them  the  opportunity  to  secure  it;  if  they  do  not 
want  it,  your  action  affords  them  the  privilege  of  its  rejection.  In  either 
event,  your  duty  will  have  been  discharged." 

Governor  Orman  also  enunciated  similar  views  in  his  inaugural  address. 
The  constitutional  amendment  passed  the  Senate  by  a  vote  of  26  to  6,  three 
Senators  not  voting.  It  also  passed  the  House  by  a  vote  of  50  to  11,  four 
members  not  voting,  and  thereupon  it  was  signed  by  Governor  Orman.  At 
the  general  election  to  be  held  in  November,  1902,  the  amendment  will  be 
adopted  or  rejected  by  a  majority  vote  on  that  question;  and  it  might  be 
remembered  that  in  Colorado  women  have  equal  electoral  rights,  and  equal 
political  responsibilities  with  men.     The  amendment  will  probably  be  carried. 

WHAT    IT    IS. 

The  Australasian  tax  which  Colorado  proposes  to  adopt  is  a  broad  appli- 
cation of  the  betterment  principle  of  taxation,  which  is  that  private  property 
increased  in  value  by  the  operation  of  the  laws  and  institutions  of  organized- 
society,  should  pay  into  the  public  treasury  a  portion  of  the  benefits  so  received. 
Stated  in  other  words,  it  is  a  tax  on  social  values — that  is,  on  the  values  of 
property  not  created  by  labor  or  industry,  but  which  are  created  by,  and  wholly 
dependent  upon,  the  existence  and  growth  of  organized  society.  It  is  not  a 
tax  on  all  property,  but  exempts  from  its  burdens  all  products  resulting  from- 
personal  and  individual  effort.  It  does  not  prevent  nor  interfere  with  the 
taxation  of  such  products  by  any  other  tax  laws,  provided  that  such  other 
taxation  is  not  inseparably  confused  with  this.        , 

In  all  the  colonies  of  Australasia  railroads,  telegraphs,  telephones  and  some- 
municipal  utilities  are  generally  owned  and  operated  by  government.  For  this- 
reason  the  Australasian  system  does  not  tax  rights  of  way  nor  franchises  in 
public  ways,  in  the  colonies.  In  this  country,  however,  where  public  utilities- 
are  generally  owned  by  private  corporations,  it  is  necessary,  in  order  to  carry 
out  the  principle  and  do  justice,  that  rights  of  way  and  franchises  in  public 
ways  be  taxed  with  other  social  values.  The  taxation  of  franchises  in  public 
ways  will  help  to  solve  the  public  utility  problem  by  encouraging  private  cor- 
porations to  improve  and  to  sell  such  property.  Under  the  Colorado  proposi- 
tion all  such  social  values  are  to  be  taxed  with  land  values. 

In  the  colonies  some  of  the  Australasian  tax  laws  are  defective  in  various 
details.  While  the  Colorado  amendment  is  very  limited,  yet  so  far  as  it  goes 
it  is  based  on  correct  principles,  without  any  exemptions,  graduations  or  other 
pretended  favors.  It  is  not  compulsory  or  mandatory  in  any  of  its  provisions, 
but  permissive  or  optional  only,  thus  giving  the  utmost  elasticity  and  freedom 
of  action.  On  each  ballot  the  people  will  vote  -"For  Australasian  Tax  System" 
or  "Against  Australasian  Tax  System,"  so  that  Colorado  will  meet  the  issue 
squarely,  without  any  equivocation  or  dodging. 

REMEDY   FOR   TAX   EVILS. 

The  Australasian  tax  system  is  a  complete  remedy  for  a  large  number  of 
the  evils  of  our  present  tax  laws. 


NATIONAL   CONFERENCE   ON    TAXATION.  113 

It  abolishes  all  fraud  in  the  listing  and  valuing  of  taxable  property.  In 
fact,  under  the  Australasian  system,  no  personal  returns  of  taxable  property  are 
necessary,  because  the  existence  and  whereabouts  of  all  such  property  is  known 
to  everybody,  and  its  value  is  the  most  widely  known  and  most  easily  and 
accurately  ascertained  of  any  property  values.  Any  person  competent  to  be 
an  Assessor  could  prepare  his  plats  from  the  Recorder's  office,  and  list  and 
value  the  property  according  to  its  legal  or  other  subdivisions,  without  hardly 
leaving  his  office,  and  without  knowing  or  caring  who  owned  it.  In  fact,  the 
Assessor  would  be  less  hampered  in  his  work  by  not  knowing  the  owner  of  the 
property  assessed. 

The  Australasian  tax  is  not  inquisitorial.  It  would  make  no  investigation 
into  the  whereabouts  or  condition  of  any  concealed  property,  for  the  reason 
that  it  does  not  attempt  to  tax  such  property.  It  does  not  therefore  interfere 
with  business  relations  nor  with  anyone's  private  affairs.  It  does  not  cause 
evasion  or  perjury. 

No  personal  returns  being  required,  and  it  being  impossible  to  conceal  the 
property  taxed,  of  course  no  oaths  are  required  from  the  taxpayer.  It  would 
thus  abolish  a  great  strain  on  religion  and  conscience,  to  which  the  American 
people  are  now  annually  subject.  It  eliminates  from  taxation  all  property  difficult 
to  value  or  which  can  escape  observation,  and  is  not  therefore  complex  nor  con- 
fusing, but  simple  and  easily  understood  and  operated.  It  prevents  all  duplica- 
tion of  taxation. 

As  all  property  to  be  assessed  under  the  Australasian  system  should  be 
platted  and  only  once  assessed,  duplication  would  be  a  mathematical  error  quickly 
detected  and  corrected.  Under  the  Australasian  tax  system  all  taxable  property 
can  be  assessed  at  full  cash  value. 

This  is  not  a  mere  theory,  it  is  the  actual  result  of  the  system  in  the  colonies. 
According  to  the  United  States  Census  of  1890,  the  per  cent,  of  the  total  assessed 
value  of  all  property  to  the  total  true  value  varies  in  the  several  States  from 
12.29  per  cent,  to  80.91  per  cent.,  and  averages  39.29  per  cent,  in  all  the  States, 
In  the  colonies  the  assessed  values  are  everywhere  considered  to  be  a  reasonable 
full  cash  value.    It  prevents  all  unequal  valuations. 

As  property  is  assessed  at  full  cash  value  and  without  the  necessity  of  any 
personal  returns,  inequalities  are  eliminated.  Neither  non-residents,  nor  corpora- 
tions, nor  the  rich,  nor  any  other  class  can  escape  from  their  just  portion  of  its 
equal  burdens.  With  only  one  kind  of  property  to  value,  the  attention  of 
Assessors  and  taxpayers  is  concentrated,  and  easily  detects  and  deters  inequali- 
ties. 

The  expense  of  assessing  and  collecting  the  tax  is  very  small.  In  fact, 
an  additional  tax,  like  that  proposed  for  the.  State  of  Colorado,  can  be  levied 
without  additional  cost,  because  the  property  is  already  assessed  by  the  State. 
The  rate  of  the  tax  would  make  no  difference  in  the  cost  of  the  listing  and 
levying,  and  but  little  in  the  cost  of  collecting. 

The  Australasian  tax  does  not  rest  on  labor  or  capital,  nor  on  anything 
which  labor  or  capital  produces.  Neither  does  it  burden  nor  destroy  any  indus- 
try, but  stimulates  and  encourages  all.  Wherever  it  has  been  put  into  opera- 
tion, it  has  enormously  encouraged  and  built  up  industries  of  all  kinds.  Its 
whole  tendency  has  been  to  largely  increase  immigation  and  to  develop  industry. 

It  is  not  a  class  tax,  nor  does  it  appeal  to  class  prejudice.  True,  it  rests  on 
the  owners  of  social  values  only,  and  not  on  other  people;  but  as  all  persons 
contribute  to  the  creation  of  social  values,  those  who  are  the  beneficiaries  of 


114  THE   NATIONAL   CIVIC   FEDERATION. 

such  values  cannot  complain  of  any  class  discrimination  by  being  taxed  thereon. 
On  the  contrary  to  tax  all  property  equally,  or  rather  to  attempt  so  to  do, 
without  a  special  tax  on  social  values,  is  class  legislation,  in  that  it  requires 
no  adequate  return  for  privileges  conferred.  The  tax  on  social  values  is  there- 
fore based  on  a' quid  pro  quo,  the  absolute  justice  of  which  should  prevail. 

The  proposed  Colorado  law  is  not  a  mere  theory,  but  is  in  successful  oper- 
ation. In  four  out  of  the  seven  colonies  of  Australasia,  viz.,  New  Zealand, 
South  Australia,  New  South  Wales  and  Queensland,  it  is  a  demonstrated  actu- 
ality. So  successful  is  it,  that  in  no  colony  or  locality  operating  under  it  is 
there  any  demand  for  its  repeal,  but  a  constant  tendency  to  perfect  and  extend 
it,  all  opposition  to  its  retention  being  annihilated. 

The  Australasian  tax  is  effective,  but  extremely  conservative.  It  is  effect- 
ive as  a  fiscal  measure  because  it  produces  an  abundance  of  revenue  at  a  min- 
imum of  expense  and  trouble.  It  is  effective  as  an  economic  measure  because 
both  in  theory  and  in  operation  it  has  bettered  the  condition  of  the  people 
affected.  It  is  conservative  because  it  may  be  tested  on  as  limited  a  scale  as 
desired.  If,  for  instance,  the  people  wish  to  encourage  the  establishment  or 
development  of  manufacturing  industries  only,  they  can  do  so  under  the  pro- 
visions of  the  Colorado  amendment  by  exempting  the  buildings  and  machin- 
ery, the  raw  materials  and  finished  products,  and  all  other  personal  property 
and  improvements  of  such  establishments  from  all  local  taxes;  by  this  method 
giving  such  plants  an  enormous  advantage  over  all  competition  in  other  States 
and  localities.  This  tax  may  be  adopted  for  either  State  or  local  purposes,  or 
for  both.  It  is  only  a  small  tax,  operated  in  conjunction  with  any  or  all  other 
kinds  of  taxes.  It  can  be  put  into  operation  in  any  State  or  locality  without 
regard  to  other  States  or  localities. 

LOCAL    TAXATION. 

Our  present  system  denies  to  the  people  the  power  of  self-government  in 
local  taxation,  or  any  option  in  determining  the  source  of  local  revenue,  and 
assumes  that  legislators  and  those  who  draft  constitutions  know  more  about 
the  revenue  affairs  of  each  municipality  or  quasi-municipality,  and  can  attend 
to  those  affairs  better  than  the  people  of  such  localities.  Our  present  system 
of  local  taxation  is  therefore  in  conflict  with  the  American  idea  of  self-gov- 
ernment, is  inflexible  and  fixed  beyond  the  power  of  the  people  of  any  locality 
to  change,  and  stands  as  an  absolute  barrier  to  any  progress  in  tax  reform. 

This  unfortunate  condition  the  Colorado  amendment  changes.  It  gives 
to  the  people  of  any  county  the  power  of  initiating  and  of  determining  their 
own  tax  system — that  is,  of  choosing  between  the  present  and  the  Australasian 
system  or  any  part  thereof,  for  local  needs.  The  proposed  system  is  elastic  and 
does  not  compel  the  adoption  or  the  permanent  retention  of  any  particular 
system,  but  after  testing  the  new  tax  in  any  locality,  should  it  not  prove  sat- 
isfactory, it  could  in  turn  be  rejected  and  the  former  system  re-established. 
It  allows  the  people  interested  to  act  as  a  jury  in  determining  the  respective 
merits  of  different  local  taxes,  and  to  adopt  the  system  that  experience  may 
show  to  be  the  superior.  The  Colorado  proposition  affecting  local  taxation  is 
short  and  is  as  follows: 

"Sec.  9.  Once  in  four  years,  but  not  oftener,  the  voters  of  any  county  in 
the  State  may,  by  vote,  at  any  general  election,  exempt  or  refuse  to  exempt 
from  all  taxation  for  county,  city,  town,  school,  road  and  other  local  purposes, 
any  or  all  personal  property  and  improvements  on  land ;  but  neither  the  whole 


I 


NATIONAL   CONFERENCE   ON   TAXATION.  115 

nor  any  part  of  the  full  cash  value  of  any  rights  of  way,  franchises  in  public 
ways,  or  land,  exclusive  of  the  improvements  thereon,  shall  be  so  exempted; 
Provided,  however,  that  such  question  be  submitted  to  the  voters  by  virtue  of 
a  petition  therefor,  signed  and  sworn  to  by  not  less  than  one  hundred  resident 
taxpayers  of  such  county,  and  filed  with  the  County  Clerk  and  Recorder,  not 
less  than  thirty  nor  more  than  ninety  days  before  the  day  of  election." 

This  system  of  home  rule  in  taxation  is  in  most  complete  and  perfect 
operation  in  New  Zealand,  and  is  constantly  being  extended  to  new  localities, 
although  it  is  also  in  operation  in  South  Australia.  New  Zealand  adopted  the 
law  in  1896,  and  the  borough  of  Palmerston  North  was  the  first  locality  to  put 
it  into  operation.  I  visited  the  place  in  1900  and  found  every  indication  of 
success  and  prosperity.  I  found  no  opposition  to  the  operation  of  the  law, 
and  absolutely  no  intention  to  return  to  the  system  of  taxing  any  of  the  prod- 
ucts of  industry.  As  I  was  walking  through  the  thriving  little  city,  I  involun- 
tarily took  off  my  hat,  feeling,  as  expressed  in  the  good  book,  that  I  was  on 
sacred  ground,  where  industry,  thrift  and  frugality  were  not  directly  taxed, 
and  where  all  direct  taxes  for  both  State  and  local  purposes  rested  on  social 
values   only. 

All  municipalities  in  Queensland  and  many  in  New  Zealand  are  supported 
by  the  Australasian  tax  system.  As  a  system  of  local  revenue  it  is  absolutely 
unsurpassed,  if  we  are  to  give  credence  to  the  conditions  of  such  localities,  and 
to  the  claims  of  those  best  qualified  to  know. 

FOR    STATE    PURPOSES. 

The  Colorado  amendment  also  liberalizes  our  State  constitution  so  as  to 
authorize  our  Legislature  to  adopt  for  State  purposes  a  tax  on  social  values 
only,  not  exceeding  two  mills  on  each  dollar  of  assessed  valuation.  In  this 
l)articular  also  we  followed  the  Australasian  system,  for  in  each  colony  which 
has  adopted  it  for  State  purposes,  the  rate,  amount  and  per  cent,  of  the  total 
State  taxes  collected  by  it  are  very  small.  The  rate  varies  from  two  and  one- 
twelfth  mills  to  fifteen  mills  on  each  dollar  of  assessed  valuation,  averaging 
about  one  penny  in  the  pound  or  four  and  one-sixth  mills  on  the  dollar,  so 
that  the  amount  of  the  tax  authorized  by  the  Colorado  amendment  is  at  a 
smaller  rate  for  State  purposes  than  that  of  any  of  the  Australasian  colonics 
A\'hich  have  adopted  the  system.  We  wished  to  be  conservative,  and  knew  that 
the  rate  could  afterwards  be  increased  by  another  amendment  should  the  sys- 
tem work  as  well  with  us  as  it  does  in  the  colonies. 

RESULTS. 

Some  of  the  results  (of  the  Autstralasian  tax  system)  have  been  the 
avoidance  of  panics  or  financial  crises,  an  increase  of  immigration  over  emi- 
gration, the  developing  of  manufacturing  and  all  other  industries,  a  decrease 
of  the  unemployed,  an  enormous  benefit  to  the  agricultural  interests  resulting 
in  a  large  increase  of  agricultural  cultivation,  an  enormous  increase  of  build- 
ing operations,  increase  in  all  kinds  of  wealth,  increase  of  wages,  shortening 
of  the  hours  of  labor  and  greatly  improved  conditions  for  working  people,  the 
improving  or  breaking  up  of  large  landed  estates  into  smaller  ones,  the  bring- 
ing of  idle  land  into  use,  the  decrease  of  crime,  complete  general  satisfaction 
with  the  new  system  and  with  the  political  parties  and  persons  establishing 
it,  a  constant  tendency  to  extend  and  enlarge  the  field  of  its  operations,  and 
in  general  a  higher  civilization.     No  other  moderate  and  conservative  law  ever 


ii6  THE   NATIONAL   CIVIC   FEDERATION. 

adopted  can  show  such  a  long  list  of  resulting  benefits  as  does  the  Australasian 
tax  system. 

CONCLUSION. 

If  the  constitutional  amendment  is  carried  at  the  polls  and  afterward  put 
into  operation,  Colorado  will  not  only  have  a  better  revenue  system,  but  also 
an  era  of  prosperity  unprecedented  in  the  West;  a  permanent  era,  that  will 
compel  the  Empire  State  and  all  other  States  in  America  to  adopt  the  same 
system  as  a  matter  of  self-defense. 

This  is  not  a  fanciful  picture.  It  is  the  actual  working  results  of  the  new 
system  wherever  adopted.  Everywhere  general  prosperity,  like  daylight  on  the 
sun,  has  waited  upon  the  adoption  of  the  Australasian  tax  system.  It  has  been 
tested  in  scattered  agricultural  communities  and  in  large  cities.  Those  wha 
predicted  evil  from  its  operations  have  been  silenced.  In  all  the  varied  indus- 
tries of  millions  of  Anglo-Saxons,  it  has  proven  to  be  a  complete  success. 

If  these  results  were  confined  to  one  colony  or  community  they  might  be 
open  to  attack.  But  as  these  are  the  general  results  in  numerous  States  and 
localities,  and  under  the  most  varied  circumstances  and  conditions,  the  prac- 
tical success  of  the  law  can  no  longer  be  questioned.  Its  advantages  having 
been  demonstrated,  Colorado  is  determined  to  have  a  change  in  its  revenue 
laws,  and  to  adopt  a  conservative,  rational,  business  system,  viz.,  the  Aus- 
tralasian tax  system. 

Mr.  Seligman  :  Mr.  Chairman,  in  view  of  the  great  interest  of  the  last 
two  papers,  and  also  in  view  of  the  fact  that  we  have  a  number  of  additional 
papers  to-day,  I  would  suggest  that  the  following  programme  be  carried  out, 
namely  that  we  hear  from  Mr.  Seward  and "  Mr.  Purdy  next ;  that  the  papers 
stop  at  four  o'clock  or  a  few  minutes  after  four,  and  that  the  next  hour,  from 
four  to  five,' be  devoted  to  a  discussion  of  these  papers  in  not  more  than  five- 
minute  speeches.  That  will  leave  but  half  or  three-quarters  of  an  hour  for 
'the  remaining  papers  of  to-day  and  the  last  few  minutes  of  the  session  for 
the  presentation  and  consideration  of  the  reports  of  the  committees.  I  move, 
therefore,  that  this  programme  be  adopted. 

The  motion  was   seconded. 

The  Chairman  put  the  question  on  Mr.  Seligman's  motion  and  the  same 
was  duly  carried. 

The  Chairman  :  We  will  now  hear  a  paper  prepared  by  the  Hon.  George 
F.  Seward,  United  States  Minister  to  China,  and  Chairman  Committee  on  Taxa- 
tion of  the  New  York  Chamber  of  Commerce,  on  the  recent  experiences  of  New 
York  State  in  taxation, 

Mr.  Seward's  paper  was  here  read,  and  was  as  follows : 

TAXATION    IN    NEW    YORK. 
By  George  F.  Seward. 


During  the  last  forty  years  the  State  of  New  York  has  appointed  many 
commissions  to  consider  its  system  of  taxation  and  to  recommend  desirable 
changes. 

These  several  commissions,  notably  that  of  which  Mr.  Welles  was  Chair- 
man, reported  much  interesting  information  and  made  many  valuable  sugges- 
tions. It  is  hardly  conceivable,  yet  true,  that  one  cannot  find  by  study  of  the 
statutes  any  indication  that  the  work  of  any  of  these  commissions  or  of  all 
of  them  combined  made  any  impression  upon  the  Legislature.     Much  less  did 


NATIONAL   CONFERENCE   ON    TAXATION.  117 

that  work  result  in  any  comprehensive  treatment  of  the  problems  in  taxation 
which  have  developed  as  the  result  of  the  great  growth  of  the  State  in  wealth, 
in  the  extent  of  its  industries  and  in  all  that  goes  to  make  up  the  complex 
life  and  necessities  of  modern  communities. 

The  State  until  lately  has  always  followed  the  principles  of  what  is  called 
the  general  property  tax  law.  In  doing  so  it  adhered  to  the  colonial  practice. 
All  property,  real  and  personal,  not  exempt  by  law,  was  subject  to  uniform 
levies  for  State  and  local  purposes  respectively.  All  taxes  were  collected  by 
the  local  authorities,  the  State  receiving  from  them  its  share.  This  law  devel- 
oped gradually  the  results  which  any  person  experienced  in  matters  of  taxa- 
tion would  have  anticipated.  From  year  to  year  representatives  of  this  and 
that  interest  went  before  the  Legislature  urging  the  claims  of  the  given  inter- 
ests to  be  exempted  from  taxation  more  or  less.  The  claims  so  advanced 
were  often  sound.  When  real  property  and  personal  property  are  taxed  simul- 
taneously double  taxation  results  inevitably.  The  taxation  of  personal  prop- 
erty is  subject  to  the  same  evil.  Largely  to  avoid  double  taxation  the  Legis- 
lature made  exemption  after  exemption,  but  in  doing  so  fell  into  many 
inconsistencies.  It  exempted  mortgages  owned  by  certain  great  interests  that 
had  the  capacity  to  present  their  claims  forcibly  and  continued  to  tax  those 
owned  by  widows  and  orphans.  Its  exemptions  left  some  corporations  free 
from  taxation,  while  other  corporations  were  burdened  to  a  serious  degree. 
Down  to  the  session  of  the  Legislature  just  closed  nothing  whatever  was 
done  comprehensively.  Each  Legislature  tinkered  with  the  system  more  or 
less  and  passed  away,  apparently  unconscious  that  the  situation  called  for 
quite  another  kind  of  work.  The  general  result  was  a  very  high  tax  rate  on 
real  estate,  and  conditions  under  which  any  capitalist  could  invest  at  a  moment's 
notice  one  million  of  dollars  or  twenty  milhons  free  by  law  of  all  taxation, 
while  another  investor,  ignorant  of  the  law,  might  be  caught  for  two  per  cent. 
or  more  upon  each  of  his  holdings. 

The  lack  of  comprehensive  treatment  of  questions  of  taxation  has  been 
attended  by  lack  of  care  as  respects  the  details  of  legislation  actually  effected. 

An  instance  of  this  is  afforded  in  the  case  of  the  transfer  or  inheritance 
tax.  It  has  been  estimated  that  it  cost  in  1899  an  average  of  twelve  per  cent. 
to  collect  this  tax.  In  Ulster  County  the  sum  of  $3,432  was  collected,  and  to 
get  that  $2,184  was  expended.  In  Clinton  County  $508  received  by  the  State 
cost  for  collection  $565.  In  Chenango  $3,740  cost  $1,196.  In  Queens  $28,030 
cost  $7,854.  In  Kings  $237,575  cost  $41,763.  In  New  York  $1,141,127  cost 
$128,423.  Some  of  the  money  expended  to  make  collections  found  its  way 
into  the  pockets  of  members  of  the  Legislature,  who  secured,  for  professional 
services  rendered  under  the  law,  fees  of  magnitude  which  nobody  at  all  could 
have  earned  if  the  law  had  been  properly  drafted. 

Another  instance  of  careless  legislation  was  that  by  which  the  tax  on 
special  franchises  (street  railways  and  the  like)  was  imposed.  The  law  was 
passed  and  at  once  the  Legislature  was  obliged  to  change  Ihe  methods  of 
making  assessments  and  collections,  and  the  whole  subject  is  still  in  so  vexed 
and  uncertain  a  state  that  the  courts  have  been  invoked  to  construe  the  law. 

The  last  session  of  the  Legislature  was  conspicuous  for  efforts  to  pass 
radical  tax  laws.  Among  the  bills  introduced  was  one  which  provided  for  a 
tax  of  one  per  cent,  on  the  capital,  reserve  funds,  undivided  profits  and  sur- 
plus  of    every    domestic   insurance    company    in    addition    to   the   existing   tax 


ii8  THE   NATIONAL   CIVIC   FEDERATION.    > 

under  the  general  property  tax  law  on  its  personal  property  for  local  pur- 
poses and  on  its  real  estate  for  local  and  State  purposes. 

One  not  acquainted  with  insurance  might  well  be  astonished  that  such 
proposals  should  be  advanced,  and  solemn  hearings  upon  them  given  by  leg- 
islative committees,  when  he  learns  that  the  meagre  result  was  a  tax  of  one 
per  cent,  on  premiums  derived  from  business  in  the  State.  And  one  knowing 
the  business  might  be  even  more  astonished  upon  considering  the  catastro- 
phies  which  such  legislation  would  have  wrought.  Two  millions  of  dollars 
would  have  been  taken  from  each  of  three  life  companies  and  equivalent  bur- 
dens would  have  been  laid  upon  all  other  companies,  life,  fire  and  niiscella- 
neous.  This  would  have  meant  the  ruin  of  those  great  interests  and  an  enormous 
resultant  loss  to  property  value  in  the  State. 

Bad  as  was  this  proposed  legislation,  it  was  matched  by  that  brought  for- 
ward for  banks  and  trust  companies.  Banks  have  long  suffered  in  our  State 
from  excessive  taxation.  The  condition  was  a  scandal  of  the  worst  kind. 
The  proposed  legislation  added  to  the  old  extreme  levies  a  franchise  tax  of 
one  per  cent,  on  the  value  of  the  stock  based  on  capital,  undivided  profits  and 
surplus.  This  was  piling  Pelion  on  Ossa.  It  was  not  taxation,  but  confiscation. 
Trust  companies  were  to  be  made  subject  to  the  same  taxation  as  the  banks, 
the  old  and  the  new.  Both  bills  failed.  Those  actually  passed  impose  taxes 
which  are  250  per  cent,  higher  than  those  upon  similar  institutions  in  the  State 
of  Pennsylvania. 

The  persons  who  introduced  the  bills  affecting  banks  and  trust  companies 
and  insurance  companies  of  all  kinds  were  the  Chairman  of  the  Committees  on 
Taxation  of  the  Senate  and  House.  It  was  understood  that  they  met  the 
approval  of  the  respective  committees  and  of  the  Governor.  They  were  intro- 
duced simultaneously  in  the  two  Houses.  The  hearings  given  were  in  some 
cases  before  the  respective  committees  of  the  two  Houses  in  joint  session. 
The  whole  situation  indicated  that  they  were  to  be  rushed  to  enactment. 

The  bills  in  question  were  introduced  as  separate  measures,  not  as  parts 
of  a  budget  for  taxation.  Their  introduction  in  this  way  was  perhaps  the 
result  of  knowledge  that  if  the  provisions  for  new  taxation  should  be  grouped 
together  in  one  bill  they  would  encounter  the  united  opposition  of  the  inter- 
ests affected  and  stand  less"  chance  of  enactment. 

So  it  happened  that  during  the  pendency  of  the  bills  there  could  be  seen 
in  the  corridors  of  the  two  Houses  and  in  the  reception  room  of  the  Governor 
and  in  his  ante-chamber  the  representatives  and  paid  agents  of  the  financial 
interests  affected.  To  these  the  Governor  gave  respectful  hearings,  although 
he  could  not  possibly  know  the  motives  by  which  those  who  approached  him, 
or  at  least  lome  ol  them,  were  affected.  The  Governor  was  not  the  only 
person  approached.  People  who  came  to  head  off  the  legislation  sought  out 
friends  in  the  Legislature  and  persons  who  were  influential  upon  the  com- 
mittees, or  employed  professional  lobbyists. 

We  are  used  in  our  land  to  irregular  methods  of  legislation.  Our  legis- 
lative bodies  do  many  good  things  and  they  do  many  bad  things.  They  do 
some  outrageous  things,  things  so  outrageous  that  we  are  all  put  on  guard  as 
to  what  may  happen  in  our  legislative  halls.  There  are  jokers  in  charter 
amendment  bills,  and  there  are  attempts  to  promote  steals  on  a  large  scale, 
a  la  Ramapo  and  the  bridge  approach  schemes. 

When  in  matters  of  taxation  a  plan  of  legislation  is  adopted  which  com- 
pletely  casts   aside  the   old   idea   of   uniform   levies,   and   the   scheme   becomes 


NATIONAL   CONFERENCE   ON    TAXATION. 


1191 


one  ol  dealing  with  individual  interests,  a  foundation  is  well  laid  for  intrigues 
to  influence  legislation,  for  the  setting  up  of  jobs,  for  the  calling  in  of  political 
managers,  for  the  corruption  of  members. 

There  are  persons  who  go  to  the  Legislature  for  revenue.  They  are  tv> 
be  found  in  every  State.  There  are  managers  of  great  interests  who  have 
grasped  the  idea  that  there  are  venal  men  in  the  Legislature.  There  are 
intermediaries,  often  men  of  respectable  status,  at  the  bar  or  in  politics.  There 
are  individual  corporations  which  may  be  taxed  thousands  of  dollars,  tens  of 
thousands,  hundreds  of  thousands,  millions  of  dollars.  There  is  the  situation 
and  there  the  machinery. 

Surely  the  case  is  one  where  the  red  signal  of  danger  should  be  run  up. 

One  might  suppose  from  the  urgency  with  which  these  bills  were  pressed, 
and  it  would  be  difficult  not  to  suppose,  that  the  great  State  of  New  York 
had  come  to  a  dire  extremity  in  the  matter  of  revenue.  Such  was  not  the 
case.  It  was  a  time  of  profund  peace.  No  unusual  public  works  were  being 
constructed.  The  revenue  had  been  greatly  increased  already  by  the  inherit- 
ance tax,  the  special  franchises  tax  and  the  Raines  law  fees.  The  treasury 
was  full  to  redundancy.  The  actual  balance  at  the  end  of  the  fiscal  year  which 
ended  September  30,  1900,  was  $7,289,802.55.  That  for  the  fiscal  year  ended 
September  30,  1899,  was  $4,504,814.74. 

The  fact  that  the  treasury  was  full  at  the  end  of  the  fiscal  year  must  not 
be  taken  to  indicate  that  economies  had  been  practiced.  As  a  matter  of  fact 
the  treasury  was  full  notwithstanding  new  and  large  expenditures.  In  the 
year  1889-90  the  outgoes  of  the  State  were  $14,822,180;  in  the  year  1894-95, 
$16,256,779;  in  1899-90,  $22,908,319. 

One  might  suppose  again  that  this  large  growth  of  expenses  would  call 
for  a  searching  examination  of  items  with  a  view  to  economy,  and  that  between 
economies  and  the  reduction  of  revenue  made  possible  by  an  overflowing  treas- 
ury, it  would  have  been  in  order  to  reduce  taxation  in  large  measure  instead 
of  providing  for  new  revenue. 

This  brings  us  to  a  point  where  we  have  to  consider  a  theory  which  is 
being  urged  with  persistency  in  our  State  and  which  had  much  to  do  with  the 
extraordinary  work  of  our  last  Legislature.  This  theory  is  that  the  revenue 
needed  for  the  expenses  of  the  State,  as  distinguished  from  the  local  divisions 
of  the  State,  should  be  derived  from  subjects  of  taxation  set  apart  for  the 
benefit  of  the  State  exclusively.  It  is  urged  by  men  of  accepted  authority  on 
economical   questions. 

And  yet  I  venture  to  say  that  the  theory  is  illogical ;  that  it  has  bred  and 
will  breed  injustice;  that  it  has  caused  and  will  cause  extravagance  in  State 
and  local  expenditures,  and  that  it  is  an  error  of  a  far-reaching  kind  destined 
to  bring  in  many  deplorable  evils. 

It  is  illogical  because  it  makes  the  lesser  thing  the  greater.  It  stands  the 
pyramid  of  taxation,  so  to  speak,  not  on  its  proper  base,  but  on  its  apex. 
Each  local  division  needs  for  its  administration  ten  dollars  for  one  which  the 
State  needs  from  its  people.  It  is  absolutely  illogical  then  for  the  State  to  invade 
the  political  divisions,  select  its  own  subjects  of  taxation  and  set  them  free 
from  local  taxation.     This  is  what  the  State  has  been  doing. 

It  has  already  worked  injustice.  Out  of  a  number  of  instances  I  give 
a  few: 

Under  the  Raines  law  nearly  $12,500,000  is  collected  in  the  various  political 
divisions  of  the  State.     One-third  of 'all  this,  not  one-tenth,  is  sequestrated  by 


120  THE   NATIONAL   CIVIC   FEDERATION. 

the  State.  Greater  New  York  alone  pays  the  State  about  $3,000,000  a  year. 
The  interest  is  absolutely  local  and  the  expenses  of  administration  made  nec- 
essary by  the  presence  of  saloons  fall  upon  the  locality.  Could  anything  be 
more  illogical  and  unjust? 

Under  the  legislation  of  last  winter  the  entire  tax  of  one  per  centum  on 
premiums  levied  by  all  kinds  of  insurance  companies  will  go  to  the  State. 
Some,  but  not  all,  of  these  companies  are  free  from  all  local  taxation  except- 
ing upon  the  real  estate  which  they  may  own. 

Trust  companies  are  to  be  taxed  one  per  cent,  on  their  capital,  undivided 
profits  and  surplus  for  the  benefit  of  the  State  and  are  to  be  subject  to  no 
local  taxes  excepting  on  their  real  estate. 

Some  title  guarantee  companies  are  put  in  the  same  category ;  not  all  of 
them. 

Savings  banks  are  to  be  taxed  one  per  cent,  on  their  surplus  funds  for 
the  benefit  of  the  State,  and  not  at  all  locally  excepting  upon  their  real  estate. 

It  was  sought  to  tax  banks  in  the  same  way  as  trust  companies  for  the 
benefit  of  the  State,  and  exempt  them  from  local  taxation,  excepting  upon  real 
estate.  The  country  members  have  banks  in  their  local  divisions.  They  were 
quick  to  see  the  loss  of  revenue  and  the  Legislature  made  the  new  tax  inure 
to  the  benefit  of  the  localities.  If  my  argument  needed  the  bolster  of  a  signifi- 
cant fact  these  country  members  afforded  it.  They  were  willing  to  let  the 
State  take  from  the  cities  the  largest  and  most  valuable  subjects  of  personal 
taxation.     Their  little  banks  must  remain  with  them. 

In"i88i  the  aggregate  of  the  appropriations  for  State  expenses  was  $9,878,- 
214.59.     In  1900  this  had  risen  to  $23,936,377.84. 

In  the  meanwhile  the  general  property  tax  rate  remained  fairly  constant. 
It  was  2.25  mills  on  each  dollar  in  1881  and  in  1899  was  2.49  mills.  The  val- 
uation of  property  in  1881  was  $2,681,257,606.  In  1890  it  was  $5,461,302,752. 
The  excess  of  expenditures  was  provided  for  meanwhile  by  the  levy  of  indi- 
rect taxes.  These  were  inconsiderable  in  1881,  but  in  1900  amounted  to 
$13,013,100.06. 

The  tax  on  the  organization  of  corporations  yielded,  in  1900,  $356,778; 
on  corporations,  $2,624,508;  inheritance  tax,  $4,334,803;  license  fees,  $4,235,- 
870;    insurance  fees,  $283,578. 

These  items,  amounting  to  about  $12,000,000,  are  drawn  almost  exclusively 
from  the  cities. 

Since  1880  the  State  has  taken  over  the  care  of  the  insane  at  a  cost  in 
1899-1900  of  $4,761,043;  of  reformatory  and  charitable  institutions  at  a  cost 
of  $2,047,830;  of  prisons  and  penitentiaries  at  a  cost  of  $783,112.  It  expended 
in  the  same  year  $4,771,658  on  school  grants;  $600,977  on  parks,  monuments 
and  historic  buildings;  $189,113  on  rivers,  highways  and  bridges;  $456,491  on 
agriculture  and  grants  to  agricultural  societies;  on  game,  fisheries  and  for- 
ests, $154,790. 

A  mere  reading  of  these  items  will  indicate  that  the  benefits  go  largely 
to  the  districts  outside  of  the  cities.  The  actual  figures  show  that  in  1898  the 
actual  cost  per  capita  of  the  State  government  to  each  resident  of  Greater 
New  York,  property  taxes  alone  considered,  was  $1.70,  while  to  each  resident 
of  twenty-nine  rural  counties  it  was  .023-10.  If  the  indirect  taxes  were  con- 
sidered, the  cost  per  capita  in  New  York  would  be  $3.54-  The  figure  for  the 
rural  counties  is  not  easv  to  calculate,  but  it  would  be  inconsiderable. 


NATIONAL   CONFERENCE   ON 

These  per  capita  figures  do  not  include  any  expenditures  of  the  State  in 
the  rural  counties  excepting  for  schools.  If  the  benefits  received  by  these 
counties  from  the  State  in  other  ways  were  brought  into  estimate  the  fact 
would  be  established  that  the  rural  districts  for  years  have  paid  nothing  to 
the  State,  in  fact  have  received  considerable  contributions  from  the  State 
directly  in  money  and  indirectly  in  the  assumption  by  the  State  of  local  bur- 
dens. In  other  zvords,  the  rural  counties  have  long  been  stipendiaries  of  the 
cities. 

The  object  in  view  last  winter  at  Albany  was  declared  to  be  the  relief  of 
real  estate  from  excessive  taxation.  One  does  not  doubt  that  real  estate  is 
over-taxed  in  New  York.  The  relief  obtained  for  real  estate  under  the  lower 
tax  rate  now  impending  will  operate  as  follows.  The  per  capita  of  Greater 
New  York  for  State  expenses  will  rise  sensibly  above  the  present  high  mark. 
The  per  capita  of  the  rural  counties  will  fall  sensibly.  In  other  words  the 
rural  counties  will  draw  still  more  heavily  from  the  cities.  The  insane,  the 
decrepit,  the  paupers,  the  criminals,  all  these  are  now  largely  cared  for  by  the 
State.  Schools  may  be  supported  hereafter  by  the  State  in  larger  measure. 
Roads  may  be  turned  over.  Already  the  State  pays  a  large  sum  for  them. 
The  system  is  such  that  the  drain  on  this  account  will  inevitably  increase  year 
by  year.  The  cities  will  care  for  their  own  streets,  and  will  pay  to  the  State 
more  or  less  of  the  moneys  needed  to  develop  better  country  roads.  The 
country  members  almost  always  control  the  Legislature.  They  want  to  please 
their  constituents.  Nothing  will  please  them  more  than  the  constant  enlarge- 
ment of  State  grants  in  payment  of  outgoes  formerly  discharged  by  the  localities. 

Nor  can  it  be  said  that  the  country  members  are  in  ignorance  of  the  facts. 
The  country  people  think  more  about  taxes  and  expenditures  than  those  in  the 
cities.  Their  contant  cry  is  that  personal  property  in  the  cities  escapes  taxa- 
tion, while  country  real  estate  cannot.  They  claim  that  the  benefits  they  get 
from  the  State  all  comes  in  a  process  of  balancing  up.  And  they  balance  up 
by  throwing  more  of  the  local  expenses  over  upon  the  State,  to  be  paid  for.  by 
the  taxation  of  city  interests. 

In  this  matter  of  selecting  special  subjects  for  taxation  for  the  sole  bene- 
fit of  the  State,  evils  result  again  by  reason  of  the  fact  that  the  selection  is 
made  in  a  haphazard  way;  also  by  reason  of  the  fact  that  no  serious  attempts 
are  made  to  equalize  burdens  between  interests.  My  paper  is  already  so  long 
that   I  must  content  myself  with  the  statement   without  adding  instances. 

The  facts  I  have  adduced  indicate  that  the  system  of  selecting  subjects  of 
taxation  for  the  sole  use  of  the  State  introduces  conditions  which  lead  to  new 
demands  upon  the  State  treasury.  They  indicate  also  that  in  the  search  for  such 
special  subjects  justice  is  lost  sight  of.  For,  what  can  country  members  of  the 
Legislature,  what  can  city  members,  know  of  the  capacity  of  this  or  that  great 
financial  or  industrial  interest  to  bear  taxation  and  live?  What  defense  have 
these  great  interests?  Their  stockholders  number  a  few  thousand  people.  The 
voters  of  the  State  run  into  millions.  Many  of  the  voters  are  not  only  ignorant 
of  financial  conditions,  but  are  full  of  prejudices  against  the  men  and  the  insti- 
tutions which  control  money.  If  taxation  without  representation  is  an  evil, 
surely  taxation  when  representation  is  infinitesmal  must  be  so  when  no  yard- 
stick is  used. 

The  scheme  of  selecting  special  subjects  of  taxation  for  the  State  contrib- 
uted to  the  failure  of  the  last  Legislature  to  do  a  simple  thing,  to  relieve  mort- 


122  THE   NATIONAL   CIVIC   FEDERATION. 

gages  from  taxation.  The  mortgages  held  by  life  insurance  companies,  sav- 
ings banks  and  building  and  loan  associations  are  exempt  from  taxation. 
Mortgages  held  by  individuals  generally  escape  the  notice  of  assessors.  Those 
held  by  estates  cannot  escape.  If  the  Legislature  had  relieved  mortgages  from 
taxation  no  considerable  revenue  would  have  been  lost  to  the  State  nor  to  the 
local  authorities.  .But  the  threat  of  taxation  increases  the  interest  rate  on 
mortgages  probably  to  the  extent  of  one  per  cent,  in  the  country  and  one-half 
of  one  per  cent,  in  the  cities.  The  abolition  of  the  mortgage  tax  would  have 
given  that  much  relief  to  mortgaged  property,  and  I  need  not  say  that  the 
proportion  of  mortgaged  to  unmortgaged  property  is  large.  The  actual  relief 
to  real  estate  this  year  from  the  imposition  of  the  new  indirect  taxes  will  not 
exceed  one-eighth  of  one  per  cent. 

Returning  to  the  so-called  balance  of  taxation,  one  may  be  permitted  to 
say  that  it  would  be  difficult  to  refuse  assent  to  the  proposition  that  the  several 
political  divisions  should  bear  all  the  burdens  of  local  government  and  should 
contribute  to  defray  State  expenses  in  equitable  measure. 

Is  this  a  possible  thing  to  bring  about?  I  certainly  think  so.  Every  piece 
of  real  estate  may  be  reached  locally.  Every  insurance  company,  bank,  trust 
company  or  other  corporation  may  be  reached  locally.  Why  is  it  necessary  to 
set  up  separate  tax  offices?  But  if  there  are  any  interests  which  can  best  be 
dealt  with  by  tax  offices  operated  by  the  State  why  cannot  the  part  of  the  tax 
received  which  belongs  properly  to  this  or  that  political  division  be  credited 
back  to  the  division? 

A  plan  proposed  last  winter  by  the  Chamber  of  Commerce  of  New  York 
offered  much  that  seemed  valuable.  Its  main  feature  was  a  provision  that  each 
political  division  should  contribute  to  the  State  on  an  apportionment  based  on 
its  local  expenditures,  relatively  to  those  of  all  the  other  political  divisions  in 
the  State.  The  details  of  this  plan  will  be  presented  by  another  speaker.  If 
it  is  to  be  made  effective  in  a  reasonable  way  the  State  should  begin  by  releasing 
to  the  political  divisions  the  subjects  of  taxation  which  it  has  stolen  from 
them.  On  the  basis  of  its  relative  expenditure  Greater  New  York  would  pay 
probably  75  per  cent,  of  the  expenses  of  the  State.  It  should  be  able  to  keep 
down  its  tax  rate  by  the  ability  to  take  taxes  on  all  proper  subjects. 

One  knows  that  under  the  older  governments  of  the  world  taxation  is 
well  studied  and  carefully  levied.  The  system  of  ministerial  responsibility  which 
prevails  now  in  greater  or  less  degree  in  all  European  States  tends  to  produce 
good  results.  The  disorderly  procedure  of  the  Legislature  which  I  have 
described  could  not  possibly  occur  when  a  ministry  stakes  its  existence  on  the 
merits  of  a  tax  measure.  In  America  we  must  get  our  results  by  advocating 
broad  lines  and  insisting  upon  them.  Special  legislation  in  any  direction  is 
condemned  by  the  universal  experience  of  the  American  States.  We  ought 
not  to  consent  to  the  Legislature  laying  down  one  rule  for  trust  companies, 
another  for  banks,  another  for  insurance  companies,  and  still  other  rules  for 
other  great  interests.  If  any  corporation  is  established  for  profit  there  should 
be  no  difference  in  its  taxation  from  that  of  any  other  corporation  established 
for  profit,  excepting  those  which  hold  special  franchises,  monopolistic  in  charac- 
ter. And  the  taxation  of  corporate  capital  should  not  be  different  from  that 
of  private  capital.     At  the  risk  of  some  injustice  we  must  have  a  general  rule. 

TJhese  to-day  will  seem  radical  ideas.  They  are  only  the  restatement  of 
the  fundamental  axioms  of  taxation  held  by  our  State  prior  to  1880.  The 
trouble  then  wa?  that  people  knew  the  principle  but  did  not  know  how  to  put 


NATIONAL  CONFERENCE  ON  TAXATION. 


123 


it  into  practice.  We  could  do  so  now  with  ease  if  our  legislative  bodies  would 
make  such  studies  as  they  should  and  act  upon  them  in  an  unselfish  and 
courageous    spirit. 

The  Chairman:  We  now  have  the  same  subject  concluded  by  a  paper 
from  Mr.  Purdy,  of  New  York,  Local  Option  in  Taxation. 

Mr.  Purdy  here  read  his  paper,  which  was  as  follows: 

LOCAL   OPTION. 


Address  by  Lawson  Purpv,  Secretary  New  York  Tax  Reform  Association. 


As  actually  administered  the  general  property  tax  no  longer  has  a  friend. 
The  theory  of  it  is  condemned  by  every  student  of  taxation.  The  problem 
before  us  is  how  the  superstitious  reverence  with  which  it  is  still  regarded  in 
rural  districts  can  be  most  effectively  assailed. 

Our  experience  in  the  enforcement  of  the  general  property  tax  and  of 
every  inquisitorial  and  coercive  law  points  out  clearjy  the  attack  which  is  on 
the  line  of  least  resistance.  Whenever  any  law  is  inquisitorial  or  subversive  of 
personal  liberty  and  fails  to  have  the  support  of  the  moral  sense  of  the  com- 
munity its  enforcement  is  never  effective  and  often  impossible.  By  a  local 
option  unsanctioned  by  law  the  evils  of  such  laws  are  tempered  in  accordance 
with  the  sentiment  of  the  community.  Local  option  should  be  exercised  within 
the  law,  not  in  spite  of  it.     It  should  be  the  rule,  not  the  exception. 

We  may  think  that  we  could  devise  a  tax  system  which  would  suit  every 
community,  but  they  will  not  let  us  do  it,  and  if  we  could  impose  it  upon  them 
by  force  they  would  apply  it  in  such  diverse  fashion  that  we  would  not  recognize 
our  own  work.  We  are  bound  to  have  local  option  of  some  sort,  either  with  or 
without  the  sanction  of  law,  whatever  we  do.  Local  option  in  the  liquor  traffic 
has  the  sanction  of  law  in  this  and  many  States,  and  where  they  do  not  have 
lawful  local  option  they  exercise  it  unlawfully.  A  few  months  ago  I  visited 
Charleston,  S.  C,  and  was  much  interested  in  the  working  of  the  State  dispensary 
law.  This  law  was  enacted  by  the  votes  of  rural  members,  and  it  is  not  approved 
by  the  city  of  Charleston.  The  result  is  that  liquor  is  sold  openly  all  over 
Charleston,  and  the  State  authorities  are  powerless  to  prevent  it.  I  was  told 
by  a  man  in  charge  of  a  State  dispensary  that  no  Charleston  jury  would  convict 
in  a  case  of  unlawful  liquor  selling,  no  matter  what  the  evidence.  State  agents 
frequently  raid  illegal  places  and  seize  what  liquor  is  on  the  premises,  but  no 
longer  make  any  arrests.  The  bar  of  the  Charleston  Hotel  was  raided  twice 
while  I  was  at  the  hotel,  but  business  was  disturbed  for  but  a  short  time,  and 
only  a  few  dollars'  worth  of  liquor  was  seized.  This  is  local  option  without  the 
sanction  of  law.  The  same  sort  of  thing  is  going  on  in  Kansas,  and  in  every 
State  where  personal  liberty  is  invaded. 

An  examination  of  the  statistics  of  assessment  will  disclose  a  similar  state 
of  things  in  every  State  of  the  Union  where  they  have  the  general  property  tax. 
A  somewhat  exaggerated  instance  of  it  happened  in  the  State  of  New  York 
a  few  years  ago.  A  law  was  passed  in  1896  conferring  larger  powers  on  the 
State  Board  of  Tax  Commissioners,  and  new  Commissioners  were  appointed. 
They  made  great  efforts  to  secure  the  better  assessment  of  personal  property, 
and  procured  the  indictment  of  some  Assessors  and  scared  the  rest. 


124  THE   NATIONAL   CIVIC   FEDERATION. 

In  the  town  of  Volney  there  were  three  Assessors  and  they  apportioned  the 
work  so  that  one  Assessor  assessed  the  property  in  the  large  village  of  Fulton 
within  the  town,  and  the  other  two  assessed  the  property  outside  the  village. 
The  town  Assessors  increased  the  assessment  outside  the  village  from  about 
twenty-five  thousand  dollars  to  over  four  hundred  thousand  dollars,  and  most 
of  the  increase  was  on  the  cattle,  horses,  sheep,  hogs  and  implements  of  the 
farmers.  The  village  Assessor  absolutely  refused  to  follow  the  example  of  the 
other  town  Assessors,  and  did  not  add  to  his  usual  assessment  of  personal 
property.  The  town  Assessors  said  they  rated  everything,  pianos,  guns,  and  even 
fish  poles,  and  in  one  case  they  assessed  a  cow  $20,  the  property  of  a  widow 
who  owned  a  few  acres  of  land.  They  assessed  a  young  man's  gun  $10.  In 
telling  the  story  the  village  Assessor  said:  "When  they  got  through  with  that 
raid  on  personal  property  they  made  a  great  row  because  there  were  no  pianos 
or  guns  in  the  village,  which  has  six  thousand  inhabitants." 

When  the  Board  of  Supervisors  of  the  county  met  it  was  found  that 
no  other  town  in  the  county  had  followed  this  example,  and  as  this  town  had  not 
voted  with  the  majority  of  the  Board  they  received  no  favors.  As  a  matter  of 
fact,  the  Board  had  no  authority  to  do  anything  for  them,  for  our  law  does 
not  provide  for  any  equalization  of  personal  assessments.  The  village  Assessor 
said  that  the  town  Assessors  would  never  again  be  induced  to  assess  the  live 
stock,  pianos,  guns  and  fish  poles  of  the  farmers  until  every  other  town  in  the 
State  had  done  it  for  one  year. 

The  assessment  for  1898  fully  testifies  to  the  truthfulness  of  this  assertion, 
as  the  assessment  of  personal  property  to  the  farmers  was  only  about  $25,000 
instead  of  over  $300,000  as  the  year  before,  and  the  number  of  persons  assessed 
was  loi  instead  of  352.  This  is  local  option  in  taxation  without  the  sanction 
of  law. 

To  make  any  real  improvement  in  the  system  of  taxation  of  three-fourths  of 
the  States  the  constitutions  must  be  amended  by  striking  out  the  provisions 
for  uniformity  and  equal  taxation  of  all  property.  The  next  step  must'  be  to 
devise  a  system  of  State  revenue  which  will  dispense  with  the  taxation  of  prop- 
erty for  State  purposes,  assessed  by  local  officials.  So  long  as  State  revenue  is 
obtained  by  taxing  all  property  assessed  locally  local  option  is  almost  imprac- 
ticable, but  this  is  by  no  means  the  only  reason  for  the  change.  The  general 
property  tax  for  State  purposes  is  a  source  of  great  evils  wherever  it  is  employed, 
and  has  been  condemned  by  Tax  Commissioners  in  many  States.  In  their  last 
report  the  Tax  Commissioners  of  Michigan  say :  "No  feature  of  our  tax  system 
should  receive  more  careful  attention  by  the  Legislature-elect  than  that  of 
State  and  county  equalization.  There  are  few  States  having  similar  methods 
for  the  equalization  of  property  but  ascribe  their  gravest  ills  to  the  baneful 
effects  resulting  from  such  apportionments.  The  evils  of  undervaluation  of 
property  in  Michigan  may  be  traced  almost  invariably  to  apportionments  for 
State  and  county  taxes." 

"The  occasion  for  State  equalization  is  generally  one  of  days  filled  with 
woe  and  gloom.  Messengers  who  are  sent  from  the  counties  are  those  who  can 
best  picture  the  swamps,  barren  and  unfruitful  fields,  and  who  can  leave  the 
deepest  impression  of  great  desolation." 

The  Michigan  Tax  Commission  shares  the  prevailing  opinion  that  the 
only  way  to  avoid  State  equalization  is  to  raise  sufficient  revenue  for  State 
purposes  by  specific  taxes  as  is  done  in  New  Jersey,  Pennsylvania,  Connecticut 
and  some  other  States.     There  are  many  and  grave  objections  to  following  the 


NATIONAL   CONFERENCE   ON    TAXATION.  ,25 

examples  of  these  States.  They  rely  for  revenue  upon  specific  taxes  levied  upon 
certain  selected  forms  of  property.  These  taxes  being  imposed  at  an  unvarying 
rate  sometimes  produce  too  much  revenue,  which  the  Legislatures  promptly 
squander,  or  produce  too  little,  and  proper  expenditures  have  to  be  curtailed, 
or  the  State  is  forced  to  borrow.  All  three  of  these  difficulties  have  been  met 
in  recent  years  by  the  States  enumerated.  In  times  of  excessive  revenue  the 
Legislatures  acquire  habits  of  extravagance,  and  in  times  of  deficit  the  business 
community,  especially  in  the  cities,  lives  in  daily  dread  that  some  new  and 
oppressive  tax  will  be  laid  to  fill  the  coffers  of  the  State.  The  system  is  utterly 
without  flexibility  and  does  more  damage  than  the  mischief  which  it  was  designed 
to  remedy. 

Speaking  of  Governor  Odell's  plan  to  do  away  with  direct  taxation  in 
New  York,  the  Hartford  Courant  says:  "We  respectfully  invite  the  leaders  of 
this  reform  scheme  to  call  in  Connecticut  and  make  inquiry  as  to  how  the 
removal  of  the  State  tax  has  worked  here.  Every  thoughtful  man  wishes  it 
had  not  been  removed.  Its  presence,  with  the  accountability  that  it  enforces, 
is  a  mighty  safeguard  against  extravagance.  If  New  York  drops  that  tax  she 
will  be  sorry  some  day  and  probably  find  herself  unable  to  put  it  on  again." 

Whatever  may  be  thought  of  this  remedy  for  equalization  from  an  academic 
standpoint,  it  is  often  exceedingly  difficult  to  carry  it  into  effect,  as  is  shown  by 
the  experience  of  New  York.  For  twenty  years  the  Legislature  has  been 
endeavoring  to  provide  revenue  for  the  State  by  specific  taxes.  It  has  succeeded 
in  raising  about  fourteen  million  dollars  annually,  and  yet,  at  the  end  of  twenty 
years,  we  still  have  to  raise  a  sum  by  the  general  property  tax  nearly  as  great 
as  the  total  expenses  of  the  State  when  the  movement  began  in  1881. 

Two  obstacles  will  always  be  encountered;  either  large  and  important 
interests  must  be  burdened  with  additional  taxes,  which  they  will  vigorously 
resist,  or  the  local  governments  of  the  State  must  reliquish  subjects  of  taxation 
from  which  they  now  derive  a  considerable  revenue,  and  it  is  always  difficult  to 
convince  them  that  they  will  gain  as  much  by  the  remission  of  State  taxes  as 
they  lose  by  abandoning  these  sources  of  revenue. 

The  plan  of  apportioning  State  taxes,  endorsed  by  the  New  York  Chamber 
of  Commerce,  and  by  the  last  Convention  of  the  League  of  American  Munici- 
palities, has  all  of  the  merit  and  none  of  the  vices  of  the  plan  of  raising  revenue 
by  specific  taxes.  It  is  simple,  flexible  and  has  a  tendency  to  fix  responsibility 
and  check  extravagance.  It  is  really  the  application  to  political  divisions  of 
the  principle  of  income  taxation  without  the  inquisitorial  features  of  the  tax 
upon  private  incomes,  which  renders  it  obnoxious  to  many.  This  method  is 
simply  to  apportion  the  State  tax  to  the  several  counties  of  the  State  in  propor- 
tion to  local  revenue.  For  example,  if  the  State  requires  one  million  dollars  and 
the  total  local  revenue  is  ten  million  dollars,  each  county  will  be  required  to 
pay  to  the  State  10  per  cent,  as  much  as  its  own  local  revenue;  if  a  county 
and  the  towns  and  cities  within  it  are  extravagant,  it  will  pay  more  State 
tax  than  if  it  is  economical.  The  amount  of  the  State  tax  will  be  definitely 
known,  and  any  State  extravagance  will  be  immediately  felt,  and  the  legislators 
called  to  account.  The  Board  which  apportions  the  State  tax  will  have  merely 
ministerial  functions,  and  the  apportionment  will  be  based  upon  a  sum  in 
proportion.  There  is  no  more  opportunity  for  friction,  and,  to  a  certain  extent, 
any  locality  can  determine  whether  its  share  of  State  taxes  shall  be  large  or 
small.  The  same  system  of  apportionment  should  be  followed  for  raising  county 
revenue. 


126  THE   NATIONAL   CIVIC    FEDERATION. 

There  are  no  statistics  available  to  show  the  precise  effect  of  this  change  in 
the  apportionment  of  State  taxes  upon  all  the  counties  of  this  State  or  of  any 
State  in  the  Union,  but  in  1899  a  legislative  committee  was  appointed  in  New 
York  to  investigate  the  subject  of  taxation  and  compiled  some  useful  statistics. 
The  committee  made  a  very  careful  investigation  of  the  amount  of  money  raised 
for  all  public  purposes  by  the  three  counties  of  Oswego,  Chenango  and  Cattarau- 
gus, and  by  all  the  taxing  districts  within  these  counties.  The  amount  raised 
for  all  public  purposes  in  the  city  of  New  York,  which  comprises  four  counties, 
is  also  known,  and  as  the  city  of  New  York  represents  over  two-thirds  of  the 
taxable  property  of  the  State  and  pays  over  two-thirds  of  the  taxes,  we  are 
able  to  determine  the  effect  of  the  change  upon  the  city  of  New  York  and  the 
three  counties  investigated  by  the  committee  with  substantial  accuracy.  For 
the  year  in  which  these  statistics  were  compiled  the  city  of  New  York  paid 
$8.20  to  the  State  for  every  $100  it  raised;  Oswego  County  paid  $10.42; 
Chenango,  $12.82,  and  Cattaraugus,  $10.13.  If  the  apportionment  had  been  made 
on  the  basis  of  revenue  it  appears,  therefore,  that  the  city  of  New  York  would 
have  paid  slightly  more  and  the  other  three  counties  considerably  less. 

These  three  counties  are  all  distinctly  rural  counties,  there  being  only  one 
city  in  the  three,  and  the  combined  population  is  only  170,000.  Chenango  has 
the  smallest  population,  and  Chenango  would  save  most  in  State  taxes  by  an  ap- 
portionment on  the  basis  of  revenue.  If  the  same  .system  were  applied  to  the  rais- 
ing of  county  revenues  the  saving  which  would  be  effected  by  the  smallest  rural 
places  becomes  still  more  apparent.  There  are  some  towns  in  the  county  of  Che- 
nango which  paid  more  than  one-fifth  of  their  total  revenue  to  the  State,  whereas, 
the  large  village  of  Norwich  paid  only  a  little  more  than  the  city  of  New  York, 
the  amount  being  $8.35  in  every  hundred. 

A  little  reflection  will  convince  any  one  that  this  plan  of  apportionment 
must  always  work  to  the  advantage  of  thinly  settled  rural  districts,  just  as 
it  would  in  the  State  of  New  York.  From  the  standpoint  of  expediency  and 
justice  this  is  as  it  should  be,  and  from  a  political  standpoint  it  renders  the 
adoption  of  this  system  comparatively  easy.  The  cities  would  be  very  great 
gainers  by  being  allowed  to  exempt  certain  classes  of  property  from  taxation, 
and  could  well  afford  to  pay  a  little  more  to  the  State  for  the  privilege.  The 
rural  districts  are  not  generally  so  anxious  for  changes  in  the  system  of  local 
taxation,  but  would  be  compensated  for  the  privilege  granted  the  cities  by  a 
very  considerable  saving  of  State  and  county  taxes. 

An  incidental  advantage  of  this  system  will  be  the  necessity  for  an  annual 
publication  of  accurate  statistics  showing  the  amount  of  revenue  raised  in 
each  political  division  of  the  State  and  the  sources  of  such  revenue.  At  the 
present  time  we  have  no  such  system,  and  we  are  trying  to  carry  on  the  business 
of  the  State  in  ignorance  of  our  income  and  the  manner  in  which  we  obtain 
it.  No  private  business  could  be  run  in  this  fashion  for  a  year.  Whether  we 
adopt  apportionment  in  proportion  to  revenue  or  not,  we  ought  to  have  such 
knowledge  of  our  governmental  affairs  as  these  statistics  will  give  us. 

With  the  adoption  of  this  plan,  the  way  is  clear  for  any  county  or  city  to 
adopt  its  own  system  of  raising  revenue  without  disturbing  the  system  of  the 
State.  This  local  option  should  not  be  an  option  to  devise  new  methods  of 
taxing;  it  should  be  exercised  within  the  general  statutes  of  the  State,  and 
should  be  confined  tO/ the  right  to  exempt  any  class  or  classes  of  property  from 
taxation.  If  the  power  were  granted  to  independent  divisions  of  the  State  to 
inaugurate  new  systems,  it  would  lead  to  serious  confusion.     The  courts  would 


THE   NATIONAL   CIVIC   FEDERATION.  127 

liave  many  laws  to  interpret,  and  uncertainty  and  costly  litigation  would  result. 
As  nearly  everything  is  now  subject  to  taxation,  the  power  to  exempt  is  all 
that  we  require. 

The  power  to  exempt  will  certainly  be  exercised,  for  the  sentiment  is 
strong  in  many  cities  for  the  exemption  of  mortgages  and  other  securities,  and 
the  labor  unions  and  business  men  are  practically  a  unit  in  favor  of  exempting 
merchandise  and  capital  engaged  in  manufacturing.  In  the  States  of  New 
Hampshire  and  Vermont  and  in  several  Southern  States  towns  are  permitted 
to  exempt  new  industries  for  a  term  of  years.  This  local  option  is  generally 
popular  and  much  exercised.  In  the  States  of  New  York  and  Michigan,  where 
this  practice  is  not  allowed  by  law,  it  has  nevertheless  been  common  for  towns 
by  vote  to  exempt  new  manufacturing  plants.  They  have  done  this  in  spite  of 
the  fact  that  to  exempt  a  new  industry  is  the  worst  kind  of  discrimination,  for 
it  gives  special  advantages  to  favored  persons,  while  the  exemption  of  a  class 
is  not  a  special  favor,  as  competition  reduces  prices  and  the  benefits  are  dis- 
tributed. At  the  same  time  these  experiments  show  that  the  people  in  a  blunder- 
ing way  have  been  trying  to  go  in  the  right  direction,  and  that  with  the  legal 
right  to  exempt  classes  of  property  exemptions  would  be  generally  and  promptly 
made. 

Mortgages  remain  taxable  in  many  States,  although  the  members  of  the 
Legislature  are  generally  fully  aware  of  the  injustice  of  such  taxation,  because 
they  are  afraid  of  the  supposed  sentiment  of  their  constituents.  With  the  power 
to  exempt  mortgages,  mortgage  taxation  in  the  cities  would  be  abolished  at  once, 
and  would  speedily  be  a  thing  of  the  past  in  every  State  that  had  local  option. 

Local  option  is  expedient  because  it  is  the  quickest  and  surest  way  toward 
progress,  but  it  is  not  only  expedient,  it  is  right ;  it  is  that  system  of  government 
under  which  questions  are  decided  by  those  who  have  the  fullest  information, 
who  have  the  best  opportunity  to  know,  and  who  have  the  greatest  interest  in  a 
wise  and  just  decision. 

The  Chairman  :  Before  taking  up  any  other  subject,  if  any  gentlemen 
have  questions  to  ask  about  any  of  t*he  papers  read  this  afternoon  an  opportunity 
will  be  given. 

Mr.  Bemis,  of  Illinois :  Mr.  Chairman,  I  was  going  to  ask  a  question  of  the 
last  speaker.  I  was  very  much  impressed  with  his  paper.  I  want  to  ask  how 
he  would  meet  the  popular  feeling  that  railroads,  telegraph,  express  and  sleeping 
car  companies  ought  to  pay  taxes,  as  they  would  not  be  reached  under  his 
scheme  of  local  taxation.  I  would  like  to  ask  how  he  has  arranged  to  meet 
that  difficulty? 

Mr.  Purdy  :  Mr.  Chairman,  I  see  no  reason  why  there  should  not  be  a 
State  Board  of  Assessors,  just  as  in  New  York  we  have  a  State  Board  of  Tax 
Commissioners  performing  certain  functions  in  the  assessing  of  certain  property, 
the  assessment  being  certified  by  certain  officials  and  then  the  local  rate  levied 
in  the  locality.  It  ^eems  to  me  that  that  general  idea  could  be  applied  with 
perfect  ease  and  success  to  the  situation  I  have  outlined. 

Mr.  Wright,  of  Michigan :  Do  I  understand  that  the  dicussions  must  be 
confined  entirely  to  inquires  of  the  gentleman? 

The  Chairman  :  I  say  we  will  pass  from  that  in  a  moment.  I  would 
like  to  dispose  of  this  feature.  Are  there  any  questions  to  be  asked  of  Mr. 
Bucklin? 

Mr.  Howard,  of  Indiana:  Mr.  Chairman,  I  did  not  gather  from  Mr. 
Bucklin's  very  interesting  paper  the  precise  method  of  determining  the  social 


128  THE   NATIONAL   CIVIC   FEDERATION. 

tax,  as  it  may  be  called,  or  the  tax  on  the  social  increment  of  property.  The- 
machinery  or  method  of  fixing  is  what  I  would  like  to  know.  I  did  not  gather 
it  from  the  paper  myself. 

Mr.  Bucklin  :  Mr.  Chairman,  it  is  simply  the  general  property  tax ;  that  is 
all.  Instead  of  trying  to  find  out  the  value  of  everything  in  this  world,  going 
into  a  jewelry  shop  and  then  a  hardware  shop  and  then  into  a  drug  store  and 
then  some  other  kind  of  a  store  and  so  on  into' all  these  different  ramifications 
of  property,  all  that  the  Assessor  would  have  to  do  would  be  to  estimate  the 
value  of  the  lot  upon  which  the  building  stood  and  upon'  which  the  business 
was  done,  so  far  as  that  particular  piece  of  property  was  concerned. 

The  Chairman:     It  is  a  tax  then  on  land  value,  is  it  not? 

Mr.  Bucklin  :   On  land  value,  on  franchise  values  and  on  rights  of  way. 

The  Chairman:     Are  improvements  taxed  under  it,  buildings? 

Mr.  Bucklin:  Improvements  are  absolutely  untaxed.  Everything  that  is 
the  product  of  industry,  everything  that  man  creates  is  exempt  from  taxation- 
under  it.  Some  one  says  it  is  a  single  tax.  It  is  not  a  single  tax.  It  is  simply 
a  system  of  land  value  taxation  which  may  be  in  operation  with  the  inheritance 
tax,  the  income  tax  or  any  other  kind  of  taxes.  It  is  simply  a  small  land 
value  tax  which  is  put  in  operation.  It  collects  a  certain  given  amount  of 
revenue.  For  instance,  in  the  localities  that  have  adopted  it  they  may  have 
adopted  it  for  all  or  part  of  their  local  needs;  so  with  the  State.  They  may 
adopt  it  for  such  portion  of  their  State  needs  as  may  be  desired.  Instead  of  the 
general  property  tax,  for  instance,  you  may  collect  it  upon  social  values.  That 
is,  there  is  this  difference  between  social  values  and  products  of  industry. 
Every  product  of  industry  has  its  cost  value.  It  may  fluctuate  above  and  below 
the  cost  of  production,  but  it  constantly  tends  toward  the  point  of  production 
unless  there  is  some  legislative  act  which  prevents  its  return  to  that  point.  But 
social  values  are  not  produced  by  toil,  not  produced  by  industry  of  any  kind, 
either  by  capital  or  labor.  They  are  produced  by  legislation  and  the  growth 
and  prosperity  of  communities.  For  instance,  land  values,  the  value  of  franchises^ 
the  values  of  rights  of  way  across  a  State  or  through  a  nation.  So  that  there 
are  two  distinct  classes  of  values.  This  is  a  tax  on  social  values  as  distinguished 
from  taxation  on  the  products  of  industry. 

Mr.  Taylor:  Here  is  a  jewelry  shop  located  on  a  40-foot  lot.  The  adjoin- 
ing piece  of  property  has  on  it  a  bank  which  has  no  franchise.  The  land  values 
are  precisely  the  same,  but  the  bank  undoubtedly  does  a  vastly  more  profitable 
business  than  the  jewelry  store.  How  would  you  assess  the  land  values  as 
between  the  land  of  the  jewelry  shop  and  the  land  on  which  the  bank  is  situated? 

Mr.  Bucklin  :  Well,  the  social  value  of  those  lands  is  precisely  the  same. 
The  fact  that  a  man  may  not  properly  utilize  it  is  no  reason  for  punishing  the 
man  who  uses  it  to  a  greater  extent.  That  the  location  may  be  put  to  a  higher 
use  is  no  reason  that  the  person  should  be  punished  by  a  greater  tax  than  the 
person  who  puts  it  to  a  lower  use.  He  pays  a  tax  upon  the  land  value,  regardless 
of  the  business  done  upon  it.  It  is  the  social  value  of  the  land,  not  the  business. 
It  is  the  site  value.  The  business  is  not  a  social  value.  It  is  produced  by  the 
industry  of  the  man  who  carries  on  the  business.  I  do  not  care  whether  it  is 
a  store,  a  bank,  a  railroad  business  or  any  other  business.  That  is  an  industry, 
and  is  produced  by  human  effort.  That  is  entirely  different  in  its  character 
from  the  social  value  that  is  created  by  the  demand  of  the  community  for  a 
certain   site   which   is   dependent,   not   at   all,   upon   whether   or   not   any   labor 


NATIONAL   CONFERENCE   ON    TAXATION.  129 

is  produced  upon  that  particular  site.  It  may  be  wholly  idle  and  still  have 
identically  the  same  value. 

Mr.  Taylor:  Then  the  social  value  would  be  regulated  by  the  yard  stick 
and  the  peculiar  notion  of  the  man  who  made  the  assessment. 

Mr.  Bucklin:  No,  sir;  it  is  regulated  by  the  demand  of  society  upon  that 
particular  site  for  that  particular  use. 

Mr,  Taylor:    As  the  Assessor  saw  society. 

Mr.  Bucklin  :  Well,  that  is  the  most  easily  ascertained  of  any  known 
value.  No  good  real  estate  man,  I  will  venture  to  assert,  who  is  well  informed 
cannot  practically  tell  you  the  value  of  any  site  of  any  portion  of  the  city 
of  Buffalo.  But  when  it  comes  to  telling  the  value  of  your  jewelry  store,  your 
bank,  or  numerous  other  enterprises,  he  cannot  do  it  without  going  and  investi- 
gating, unless  he  has  the  intelligence  of  the  Almighty  Himself.  He  cannot  know 
what  the  value  was. 

The  Chairman  :  What  you  mean  by  the  social  value  of  land  is  the  rental 
value  of  the  land  without  improvement? 

Mr.  Bucklin:  It  is  the  selling  value,  the  market  value  of  the  land,  the 
value  that  the  land  has  in  the  market. 

Mr.  Howard  :  A  question  I  would  like  to  put  is  perhaps  entirely  answered, 
but  I  am  entirely  unable  to  distinguish  between  this  method  of  taxation  and 
a  single  land  ta.x.  myself.  I  would  like  to  ask  a  question  of  the  gentleman  from 
New  York,  and  that  is :  Whether  the  local  option  ta.x  has  been  put  in  practice 
anywhere? 

Mr.  Purdy  :  As  Mr.  Bucklin  has  described,  local  option  has  been  in  force 
in  New  Zealand  for  five  years,  also  in  British  Columbia  for  fifteen  years.  To  a 
greater  or  less  e.xtent  it  has  been  in  force  in  the  United  States  for  a  great  many 
years.  The  towns  in  New  Hampshire  and  Vermont  have  certain  powers.  They 
may  exempt  new  industries  for  several  years,  and  they  make  certain  other 
limited  exemptions.  That  is  also  the  case  in  Delaware  and  in  some  of  the 
Southern  States. 

A  Member  from  Delaware:  I  would  like  to  ask  in  case  a  bank  building 
should  be  erected  right  alongside  of  a  workingman,  would  the  social  value 
affect  the  workingman  detrimentally  or  the  workingman  beneficially? 

Mr.  Bucklin  :  That  would  be  a  very  rare  occurrence.  I  suppose  you  have 
a  number  of  such  in  the  city  of  Buffalo,  and  New  York,  and  other  large  cities  of 
the  East.  I  have  never  come  across  such  a  case;  but  I  will  say  this,  that  if 
any  person  sees  fit  to  use  a  site  which  ought  to  be  used  for  business  purposes 
for  some  minor  purpose,  or  puts  it  to  a  lesser  use,  for  instance,  that  of  a 
residence,  he  ought  to  pay  just  as  much  for  holding  that  site  in  that  kind  of 
way;  he  ought  to  pay  just  as  much  taxes  as  he  would  if  he  put  it  to  a  higher 
use  and  to  the  natural  use  to  which  that  lot  should  be  put,  and  as  far  as  benefiting 
the  people  is  concerned,  the  people  that  will  be  most  benefited  will  be  all  the 
people,  by  the  most  just  and  wise  system  of  taxation.  You  adopt  a  system  of 
taxation  that  is  in  harmony,  that  can  be  defended  as  a  rational  system  of  taxation, 
and  you  will  do  more  good  to  the  masses,  and  for  the  common  people  of  this 
country,  than  you  will  if  you  attempt  simply  to  adopt  a  system  which  is  supposed 
to  help  the  poor  at  the  expense  of  the  rich. 

The  Chairman  :  If  there  are  no  more  questions  the  Chair  will  now 
recognize  Mr.  Wingate. 

Mr.  Wingate,  of  Indiana:  Mr.  Chairman,  it  is  very  gratifying  that  in  this 
Convention,  as  in  most  Conventions  of  national  interest  that  have  been  held 


I30  THE    NATIONAL   CIVIC    FEDERATION. 

in  late  years,  Indiana  seems  to  be  in  evidence.  A  long  time  ago  I  was  taught 
that  if  you  want  to  get  a  good  apple  you  must  look  in  a  tree  that  has  clubs 
in  it.  The  gentleman  who  allows  trees  in  his  orchard  to  be  torn  down  and 
stock  to  come  in  and  tramp  and  loaf  around  in  the  shade  of  the  old  tree  until 
they  have  tramped  it  out  of  existence,  I  submit  to  you  will  not  have,  nor 
would  he  deserve  much  sympathy  if  in  the  long  winter  evening  he  had  no 
good  big  ripe  apple  to  take  the  bad  taste  out  of  his  mouth  before  he  retired  for 
the  night.  I  want  to  say  a  word  in  regard  to  the  way  that  we  try  to  take 
care  of  this  old  tree  in  Indiana,  and  how  we  try  to  go  about  executing  this 
law.  We  have  our  system  as  has  been  defined  by  Judge  Ploward  very  ably  this 
forenoon.  To  begin  with,  about  thirty  days  before  the  listing  of  property,  which 
occurs  on  the  ist  of  April,  and  from  the  ist  of  April  until  the  ist  of  June, 
we  call  a  meeting  of  the  County  Assessors,  of  which  every  county  has  one,  in 
Indianapolis,  and  we  have  a  two  days'  meeting  at  that  place.  There,  with 
the  State  Board  of  Tax  Commissioners,  the  Governor,  the  Auditor,  the  Secretary 
of  State,  we  discuss  the  law,  we  discuss  values,  we  discuss  everything  that 
pertains  to  the  taxation  of  property,  and  we  instruct  these  County  Assessors  in 
such  a  way  that  they  can  go  home  and  call  meetings  of  their  Township  Asessors, 
and  in  like  manner  discuss  the  mode  of  listing  property,  and  the  values  to  be 
placed  on  that  property,  as  we  have  done  in  our  State  meeting.  When  the 
listing  of  this  property  is  about  half  over  the  Tax  Commissioners,  of  which 
there  are  two,  the  territory  of  the  State  being  divided,  and  we  each  take  our 
own  territory,  we  call  what  we  denominate  district  meetings  of  the  County 
Assessors,  and  we  sit  down  in  these  Congressional  District  meetings  and  compare 
the  assessments  which  Up  to  that  time  have  been  the  listing  of  property,  and 
compare  the  assessments  that  are  being  made,  and  ask  what  property  is  listed 
at  in  this  county  and  that  county  and  all  around  in  the  year  that  we  appraise 
real  estate.  In  other  words,  we  say:  "What  are  you  listing  corn  at;  and  you, 
and  you,  and  you."  And  when  we  find  five  or  six  men  are  listing  it  at  the 
proper  price,  say,  thirty  cents  a  bushel,  that  is  our  valuation  in  Indiana.  At 
a  meeting  in  Indianapolis,  to  illustrate,  ten  County  Assessors  are  present  and 
eight  of  them  are  listing  corn  at  thirty  cents  a  bushel,  one  of  them  at  twenty- 
five  cents  a  bushel  and  one  at  thirty-five  cents.  The  one  that  was  listing  corn  at 
thirty-five  cents  it  was  determined  should  lower  his  assessment,  and  the  other,  it 
was  determined,  should  raise  his.  So  we  get  a  uniform  method  of  taxation. 
Next  year  we  propose  that  the  Tax  Commissioners  hold  meetings  in  the  several 
counties  with  the  County  Assessor  and  with  the  Town  Assessors  for  the  purpose 
of  more  equitably  listing  this  property  and  continuing  to  get  more  and  more 
toward  a  uniform  appraisement. 

I  wanted  to  say  just  these  words  as  to  the  manner  in  which  we  try  to 
execute  this  law;  and  from  our  experience,  gentlemen,  in  all  seriousness,  from 
the  effect  and  the  results  that  we  have  had  from  our  law  I  am  sure  I 
would  not  be  warranted  in  inviting  any  gentleman  here  to  come  to  our  State 
with  the  assurance  that  he  would  escape  taxation.  He  would  be  listed  under 
the  Indiana  State  law  as  it  now  exists,  and  in  which  law  we  shall  have  confidence 
until  somebody  shows  us  a  better  law  by  having  it  put  in  actual  use  as  contra- 
distinguished from  mere  theory. 

Mr.  McMullen,  of  Illinois:  Mr.  Chairman,  I  desire  to  make  one  remark 
along  the  line  of  the  paper  of  Mr.  Tooke  which  was  read  this  morning.  We 
have  found,  in  the  city  of  Chicago  particularly,  that  one  of  the  best  discoveries, 
one  of  the  best  assistant  Assessors,  has  been  the  publication  of  the  tax  list. 


NATIONAL   CONFERENCE   ON    TAXATION.  131 

Mr.  Chase,  of  Iowa:  Mr.  Chairman  and  Gentlemen,  it  is  not  with  the 
intention  of  discussing  any  papers  that  have  been  read  to-day  that  I  arise, 
but  it  is  to  put  Iowa  on  record  in  saying  that  we  are  heartily  in  sympathy  with 
the  State  of  Indiana.  Our  tax  laws  in  Iowa,  and  I  have  lived  there  for  thirty- 
three  years,  do  not  vary  but  a  very  little  from  those  of  Indiana.  I  shall  not  go 
into  any  detail  as  to  how  we  make  our  assessment,  but  I  can  say  that  a  watch 
presented  to  me  by  my  father  when  I  left  New  York  years  ago  I  pay  taxes 
on  every  year  in  Iowa,  and  am  not  ashamed  of  it.  I  have  been  observing  these 
papers,  and  I  did  not  intend  to  say  anything  at  all  about  it,  but  I  notice  that 
there  is  a  difference  in  the  way  you  write  a  paper.  One  man  has  a  theory, 
but  I  notice  that  his  theory  is,  not  how  are  we  going  to  assess  property,  but 
how  are  we  going  to  escape  taxation.  I  do  not  want  to  discuss  this,  but  as  I  say 
I  want  to  go  on  record  hand  in  hand  with  Indiana.  The  West  Virginia  law 
is  nearly  like  our  Iowa  law.  In  closing,  I  just  want  to  accept  a  challenge  that 
was  made  here  this  morning  by  a  gentleman  from  Ohio.  I  will  give  him  a 
patent  he  can  get  rich  on.  He  says  it  is  utterly  impossible  to  assess  mortgages. 
I  say  you  can  assess  mortgages  easier  than  you  can  assess  a  horse  or  a  cow,  and 
I  will  tell  you  how.  A  mortgage  is  on  record  in  your  court  house.  No  man 
will  take  a  mortgage  without  recording  it.  Now,  this  is  the  way  we  assess  it 
in  Iowa.  If  you  send  your  Tax  Assessor  or  the  Assessor  of  Property  to  your 
court  house  let  him  go  through  your  records;  he  will  assess  every  mortgage 
that  has  been  recorded  in  the  last  year.  Will  not  that  assess  your  mortgages? 
Now,  what  is  the  effect,  gentlemen?  I  just  want  to  express  one  more  idea 
here.  When  I  left  New  York  to  go  West  our  farming  property  in  this  country 
was  worth  frorA  fifty  to  seventy-five  dollars  an  acre.  I  come  back  here  to-day 
and  go  over  these  hills  and  I  find  that  from  five  to  ten  per  cent,  of  the  houses 
are  nailed  up.  I  go  into  the  Western  country,  where  we  assess  everything,  the 
farmer  equal  with  the  banker,  the  loan  and  trust  man.  Our  taxes  are  uniform. 
We  all  pay.  In  this  country,  you  see,  the  man  with  the  real  estate  pays,  but  the 
map  with  the  dollars  in  the  bank  does  not  pay  a  cent.  I  would  like  to  ask  one 
question  here,  and  that  is:  Whether  in  Indiana  you  assess  deposits  in  savings 
banks  ? 

Mr.  Taylor:    We  do. 

Mr.  Chase:    That  is  all.     I  thank  you,  gentlemen,  for  your  attention. 

Mr.  West:  Mr.  Chairman,  in  discussing  the  Australian  system  of  taxation, 
so  called,  I  suppose  that  the  land  tax  was  introduced  in  New  Zealand  before  the 
appearance  of  "Progress  and  Poverty."  May  I  ask  whether  that  original,  and  I 
believe  temporary,  land  tax  introduced  by  Sir  George  Gray  was  a  tax  on  the 
unimproved  value  of  land  only? 

Mr.  Bucklin  :  Yes,  it  was  a  tax  on  unimproved  values.  It  was  adopted 
in  1878,  repealed  in  1879,  and  re-enacted  in  1891. 

Mr.  West:  But  at  that  time  in  1891  and  for  some  years  after  that  the 
improvements  were  not  entirely  exempted. 

Mr.  Bucklin  :  The  original  law  entirely  exempted  them.  The  law  adopted 
in  1891  made  a  distinction  as  to  improvements  of  the  value  of  fifteen  thousand 
dollars.    That,  however,  was  repealed  in  1892  or  1893. 

Mr.  West:  Mr.  Chairman,  I  am  inclined  to  think  that  the  gentleman  from 
Iowa  lost  the  point  of  the  discussion  of  the  taxation  of  mortgages.  It  is  easy 
enough,  and  I  think  it  is  so  recognized  now,  to  put  a  tax  upon  mortgages,  or 
upon  mortgaged  real  estate.  The  difficulty  is  to  make  it  stick  there.  With 
reference   to   the   supposed   necessity   of  taxing   personal   property   in   order   to 


132  THE   NATIONAL  CIVIC   FEDERATION. 

reach  the  millionaries  who  live  in  hotels,  that  was  referred  to  this  morning,  I 
should  like  to  hear  from  the  same  expert  as  to  who  is  paying  the  taxes  on  the 
Iroquois  Hotel  this  week. 

The  Chairman  :  At  the  adjournment  this  morning  a  paper  was  read 
by  Mr,  Hines,  of  Louisville,  on  the  taxation  of  railway  and  other  public 
service  corporations.  A  suggestion  has  been  made  to  the  Chair  that  no  oppor- 
tunity was  given  to  ask  any  questions  of  Mr.  Hines,  or  to  discuss  his  paper. 
An  opportunity  will  now  be  given  for  such  discussion. 

Mr.  Godard  :  Mr.  Chairman,  I  am  sorry  to  say  I  was  called  out  this 
morning  and  did  not  hear  Mr.  Hines'  paper.  In  our  State  we  have  a  Commission 
engaged  in  the  work  of  revising  our  tax  laws,  and  they  expect  to  make  a  report 
at  the  next  session  of  our  Legislature.  One  of  the  questions  perplexing  us 
in  regard  to  the  assessment  and  taxation  of  railroads  is  the  assessment  of  the 
terminal  properties  of  these  roads.  I  might  say  that  we  expect  to  present  a  plan 
for  the  taxation  of  all  this  property,  and  the  question  is  arising  with  us  whether 
the  terminals  should  be  assessed  to  the  entire  length  of  the  line  or  whether 
they  should  be  assessed  locally  in  the  county  or  municipality  where  they  belong. 
The  Chairman,  I  believe,  reverted  to  this  matter  yesterday  in  referring  to  the 
way  in  which  they  were  taxed  in  Missouri.  I  believe  he  said  that  the  terminals 
in  St.  Louis  were  taxed  to  the  entire  lines  to  which  they  belonged  throughout 
the  existence  of  the  State.  It  strikes  me  if  it  is  proper  to  assess  those  terminals 
through  that  line,  it  is  then  proper  to  assess  part  of  them  over  in  our  State, 
for  at  least  three  lines  of  road  having  terminals  in  the  city  of  St.  Louis  extend 
into  our  State,  and  yet  I  suppose  it  would  hardly  be  conceded  that  we  have 
the  right  to  tax  any  property  in  the  State  of  Missouri.  I  would  like  to  inquire 
how  this  is  done  in  Indiana,  for  I  must  say  I  am  very  much  interested  in  this 
subject  as  it  has  been  discussed  by  the  gentleman  from  Indiana,  and  also  by  the 
gentleman  from  Ohio,  who  read  his  paper  yesterday,  and  by  the  gentleman 
from  Iowa.  I  think  that  we  people  from  the  West  are  in  sympathy  with  those 
lines  of  taxation.  It  has  occurred  to  me  with  regard  to  these  terminals  that 
they  belong  to  the  locality  in  which  they  are  situated.  The  buildings  and  the 
side  tracks,  all  the  structures  are  upon  very  valuable  land,  and  it  seems  to  me 
that  that  value  belongs  to  the  locality;  and  yet  I  arise  to  ask  this  question  for 
the  purpose  of  getting  more  information  upon  this  subject.  It  is  possible 
that  I  am  mistaken  in  that  respect  and  I  would  like  to  know  the  experience  in 
'Other  States,  if  there  are  gentlemen  here  who  can  make  a  statement  in  that 
regard.  I  would  like  also  to  ask  another  question,  and  that  is:  How  best  to 
Teach  the  property  of  these  companies  who  own  and  operate  independent  cars ; 
that  is,  the  independent  car  line  companies.  I  believe  those  cars  are  usually 
owned  by  corporations.  They  run  through  the  various  States.  Most  of  their 
cars  are  scattered  all  over  the  country  all  the  time.  It  has  been  suggested 
here  that  that  can  be  done  by  regulation  of  foreign  corporations.  That  is  a 
somewhat  difficult  matter  when  the  foreign  corporations  have  no  litigations  and 
have  no  property  in  the  State  except  the  cars  themselves.  We  can  refuse  them 
the  rights  of  the  courts,  but  that  will  not  compel  them  to  return  their  property 
if  they  have  no  litigation  in  that  State,  and  they  are  not  liable  to  have  any. 
I  would  lilce  to  know  the  experience  of  the  other  gentlemen.  As  I  said  in 
regard  to  the  taxation  of  terminals,  I  was  not  satisfied  with  the  theory  put 
forth  by  Mr.  Judson.  I  know  that  our  learned  Chairman  is  well  posted  in  these 
matters,  and  yet  we  in  Kansas  are  not  always  satisfied  to  follow  the  benighted 


NATIONAL   CONFERENCE   ON    TAXATION.  133 

State  from  which  he  comes.     We  remember  that  there  was  a  time  when  the 
taxes  in  that  State  were  collected  by  Jesse  James. 

Mr.  Bemis,  of  New  York:  Mr.  Chairman,  I  would  not  attempt  to  answer 
the  last  gentleman's  question  altogether,  for  I  know  that  the  gentlemen  from 
the  other  State,  who  are  practical  Assessors,  will  take  that  up.  I  rose  chiefly  for 
another  purpose,  but  I  will  say,  as  I  understand  it,  the  Supreme  Court  of  the 
United  States  in  many  decisions  has  held  that  about  the  most  practical  way  of 
apportioning  a  railroad  between  several  States,  when  it  runs  through  several,  is 
on  the  basis  of  the  miles  of  main  track,  and  then  remains  the  question  of  the 
apportionment  of  the  part  within  the  single  State.  I  think  justice  would  seem 
to  require  that  terminals  should  be  given  special  weight,  and  it  can  be  done 
inside  of  the  State ;  but  as  between  several  States  1  question  whether  decisions 
of  the  Supreme  Court  will  permit  of  that.  Having  got  an  apportionment  of  the 
amount  of  value  in  the  State  by  the  ratio  of  the  mileage  of  the  State  it  would 
seem,  I  should  think,  entirely  practicable  to  apportion  that  mileage  on  some  such 
basis  as  this:  Let  there  be  a  careful  inventory  of  the  physical  value  of  all  the 
property  of  the  road  in  the  State.  That  would  in  the  case  of  a  city  take 
up  the  special  value  of  the  land  occupied  by  the  terminals  at  the  value  that 
such  land  adjoining  will  sell  for  in  the  city.  Having  thus  gotten  an  inventory 
of  the  structural  value  of  the  road,  if  it  be  found  that  the  true  value  of  that 
road  as  an  earning  concern,  or  based  on  its  selling  value,  is  seventy-five  per 
cent,  more  than  its  structural  value  then  that  additional  seventy-five  per  cent, 
which  I  would  call  the  franchise  value  could  be  apportioned  between  the  various 
counties  of  the  State  by  simply  adding  seventy-five  per  cent,  to  the  structural 
value  in  each  county  of  the  State,  and  in  that  way  the  localities  that  had  the 
largest  structural  values  would  also  get  the  most  of  the  franchise  value.  I  think 
in  marty  States  the  custom  is  being  followed  of  apportioning  in  the  counties 
and  cities  on  the  same  basis  that  the  Supreme  Court  seems  to  require  between 
the  States  on  the  transfer,  the  mileage  of  the  main  track  only,  and  they  thus 
seem  to  make  hardly  a  just  proportion.  In  regard  to  car  lines,  I  had  the  idea 
that  those  were  assessed  as  sleeping  car  companies  and  express  companies  on 
the  basis  of  the  proportion  of  the  gross  receipts  or  the  basis  of  mileage. 

A  Member:     Mileage. 

Mr.  Bemis  :  Mileage  is  usual.  I  think.  Other  companies,  like  telegraph 
companies,  on  the  miles  of  wire.  I  rose  chiefly  to  speak  a  word  on  the  question 
of  Mr.  Hines'  paper  this  morning,  which  called  forth  this  other  discussion.  He 
spoke  of  the  railroads  as  hardly  affected  by  a  public  use,  as  he  expressed  it, 
over  and  above  most  corporations,  because,  in  the  first  place,  railroads  did  not 
provide  the  advantages  which  the  public  desire.  He  spoke  of  only  two  or  three 
companies  where  roads  are  owned  and  operated  by  the  public.  I  suppose  this 
was  a  slip  of  the  pen,  as  he  was  aware  that  the  majority  of  all  the  mileage 
of  the  world  is  in  the  hands  of  public  States  of  the  world,  that  outside  of  England 
and  this  country  probably  four-fifths  of  the  railroad  mileage  of  the  world  is 
owned  and  operated  by  government.  It  is  true  even  in  Australia,  South  Africa, 
Russia  and  New  Zealand.  But  passing  on  to  the  particular  reason  why  we  may 
put  a  special  tax  upon  railroads  it,  of  course,  is  evident  that  the  government 
has  reserved  the  right  and  does  regulate  their  charges.  It  does  that  and  can 
do  it  in  certain  other  cases  as  was  referred  to  by  Mr.  Hines.  The  government 
reserves  the  right  to  regulate  fares  because  the  business  is  not  subject  to  the 
ordinary  regulation  of  competition.  If  all  business  should  get  into  that  condition 
then  we  should  have  ground   for  treating  all  as  of  a  quasi-public  character. 


134  THE   NATIONAL   CIVIC   FEDERATION. 

requiring  regulation  of  rates,  and  special  rates,  perhaps  of  taxation,  but  unless 
we  are  sufficiently  socialistic  to  believe  that  all  business  will  disappear  from 
the  competitive  States,  which  I  am  not,  then  there  will  remain  a  large  element 
of  business  which  does  not  come  under  the  category  which  the  railroads  do.  Of 
course,  they  have  the  right  of  eminent  domain  and  other  things  that  I  shall  not 
refer  to  now. 

The  gentleman  maintained  that  assessing  railroads  on  the  basis  of  the  value 
of  their  securities  or  on  the  capitalization  of  their  net  earnings  assessed  them 
unfairly  as  compared  with  other  corporations.  He  instanced  Indiana,  where  he 
said  the  Louisville  and  Nashville  paid  twenty  per  cent,  of  its  income  in  that 
State  in  taxes.  I  wish  we  had  more  data  to  determine  what  percentage  of 
net  income  was  paid  by  other  classes  of  property,  but  I  venture  to  say  that  the 
farmer  does  pay  to-day  fully  twenty  per  cent,  of  his  net  income  in  taxes.  He 
would  probably  answer  that  that  was  not  true  of  a  manufacturing  corporation. 
Whether  it  is  or  not  is  a  matter  that  we  have  not  enough  information  to  be  sure 
about.  But  even  if  it  be  true  that  a  manufacturing  corporation  does  not  pay  as 
much  as  a  railroad  in  some  States,  let  us  see  what  can  be  said  as  to  that. 

The  Chairman  :  I  am  obliged  to  remind  the  gentleman  that  he  is  over  his 
five  minutes. 

Mr.  Taylor:  Mr.  Chairman,  I  think  the  suggestion  of  Prof.  Bemis  is  a 
valuable  one.  Value  to-day  of  unhazarded  money  is  fixed  by  the  value  of 
government  bonds,  and  that  is  about  1.92  per  cent.  That  is  the  gross  total 
value  of  unhazarded  money  in  America.  The  State  of  Illinois  through  which 
a  railroad  with  which  I  am  connected  runs  pays  eight  per  cent,  on  the  value 
of  its  property.  In  many  counties  in  the  State  of  Illinois  and  in  the  city  of 
Chicago  two  years  ago  my  railroad  paid  thirteen  and  five-tenths  on  the  valuation 
placed  upon  it  in  that  State,  or  six  times  the  total  gross  earning  power  of 
unhazarded  money  in  this  country.  Therefore,  if  the  Illinois  road  pays  thirty 
per  cent,  of  its  net  earnings  in  Indiana  it  is  away  below  the  gross  value  we  pay 
in  some  other  States.  I  have  a  train  on  my  road  that  runs  through  four  States. 
The  conductor  has  a  punch  in  his  pocket.  On  that  he  pays  in  Kentucky,  as  we 
leave  the  State  of  Illinois  four  per  cent,  on  the  value  of  the  punch.  He  goes 
into  Indiana  and  he  pays  1.15  per  cent.  He  goes  into  Illinois  and  he  pays  from 
four  to  nine  per  cent,  on  the  value  of  the  punch.  He  goes  into  St.  Louis  where 
3'ou  live  and  pays  from  two  to  three  and  a  half  per  cent,  on  the  value  of  the 
punch.  In  the  State  of  Ohio  I  have  a  road  that  pays  two  per  cent.  In 
New  York  State  I  understand  the  taxes  are  two  per  cent.  Shall  we  in  Indiana, 
that  have  the  lowest  tax  rate  of  any  State  in  the  nation  that  I  know  of,  surrender 
our  tax  system  for  your  tax  system,  when  you,  yourselves,  admit  that  you 
have  a  system  that  is  not  worth  a  fig?  This  is  a  practical  age,  with  practical 
men  dealing  with  practical  things.  The  fourteen  hundred  million  dollars  of 
property  in  Indiana  is  assessed  by  the  four  State  officers  and  the  Governor.  There 
is  no  final  assessment  in  Indiana  by  anybody  until  the  Governor  and  the  four 
State  officers  make  the  assessment.  Local  assessment  is  tentative.  The  county 
officers  harrow  over  the  local  assessment.  They  harrow  over  the  whole  territory 
of  their  county  again  and  again,  crosswise,  in  order  to  level  up;  then  the  State 
Board  takes  it  up.  Not  nondescripts  elected  from  here  and  there  or  men 
appointed  and  coming  from  all  sorts  of  sources,  but  State  officers  elected  by 
all  the  people;  and  the  four  great  classes  of  property,  real  estate,  town  lots,  and 
city  lots,  railroads  and  personal  property  are  then,  in  each  county,  all  again 
harrowed  over  by  the  State  Board,  and  until  they  have  harrowed  and  cross- 


NATIONAL   CONFERENCE   ON    TAXATION.  135 

harrowed  and  reharrowed  there  is  no  assessment  at  all  in  Indiana.  So  that 
we  have  the  ten  years  from  1891  until  now  hanging  on  the  wall;  every  county 
in  Indiana  by  the  side  of  every,  other  county,  and  every  assessment  for  each 
of  the  ten  years  of  all  the  counties  rests  upon  the  walls  and  the  State  Board 
can  go  over  it  and  see  where  errors  have  been  made  and  correct  them,  and 
this  is  the  practice  after  ten  years  of  the  best  kind  of  legislation  as  we  believe. 
We  like  our  law  better,  and  better,  and  better  every  year.  You  say  personal 
property  is  not  assessed.  Of  the  thirteen  hundred  million  dollars  of  our  property 
real  estate  pays  eight  hundred  millions  and  personal  property  five  hundred 
millions  of  our  taxes.  So  that  we  do  get  at  personal  property  and  we  do  have  a 
system  that  we  like,  and  until  somebody  either  from  New  Zealand  or  Chicago 
brings  us  a  better  system  we  are  going  to  stand  by  ours. 

Mr.  Wright,  of  Michigan:  Mr.  Chairman,  there  are  two  or  three  respects 
in  which  Michigan  has  been  referred  to,  and  in  a  way  the  gentlemen  are 
entirely  correct  as  far  as  they  went.  The  Chairman  in  his  very  able  paper  this 
morning  referred  to  the  change  in  Michigan  regarding  mortgage  taxation.  In 
1891  we  had  the  division  of  the  interest  between  the  owner  and  the  mortgagee. 
In  1893.  because  of  the  unsatisfactory  working  of  that  system,  not  from  the 
theoretical  standpoint,  but  from  its  unsatisfactory  practical  working,  we  went 
back  to  the  system  of  assessing  the  full  value  of  the  property,  and  the  mortgage 
was  also  assessed,  the  theory  being  that  which  was  expressed  by  a  gentleman 
the  other  day  that  each  has  the  property,  and  we  are  not  assessing  equities,  but 
the  actual  property  which  the  party  has.  One  has  the  lien,  the  other  has  the  land. 
One  of  the  practical  disadvantages  of  that  was,  under  our  system  of  statutory 
forfeiture,  the  owner  would  not  pay  his  tax  very  frequently,  and  instead  of 
asking  to  pay  the  tax  on  lot  7  in  block  19,  or  on  the  southeast  or  northwest 
corner,  he  says:  "My  names  is  Jones,  and  I  will  not  pay  my  tax."  He  never 
knew  till  it  came  to  sale  that  all  the  tax  on  that  land  was  not  paid.  You 
may  say  that  was  due  to  his  personal  ignorance.  I  submit  that  all  of  us  are 
grossly  ignorant  on  any  subject  we  have  not  given  special  study,  very  often. 
I  have  here  the  very  Mast  enactment  of  that  State  which  has  not  yet,  or  had 
not  when  I  left,  been  signed  by  the  Governor,  but  which  there  was  no  question, 
or,  at  least,  very  little  doubt  would  be  signed.  That  comes  from  certain 
agitation  which  I  need  not  refer  to  here,  and  the  section  as  amended  reads: 
"Section  24a.  A  mortgage,  deed  of  trust,  land  contract,  or  any  other  contract 
or  obligation  by  which  land  is  pledged  or  a  debt  is  secured  by  a  lien  upon  real 
property  within  this  State,  shall,  for  the  purpose  of  assessment  and  taxation,  be 
deemed  and  treated  as  an  interest  in  such  real  property,  unless  the  same  shall 
contain  such  a  contract  as  to  the  payment  of  taxes  as  is  mentioned  in  section 
24  of  this  act,  except  as  to  the  property  of  such  companies  and  quasi-public 
corporations  as  may  otherwise  be  required  by  law  to  pay  a  specific  tax  to 
the  State  in  lieu  of  all  other  taxes.  In  such  case  the  value  of  the  property 
affected  by  such  mortgage,  deed  of  trust,  land  contract,  or  other  obligation,  less 
the  value  of  such  security,  shall  be  assessed  and  taxed  to  the  owner  of  the 
property,  and  the  value  of  such  security  shall  be  assessed  and  taxed  to  the 
owner  thereof,  in  the  county  and  assessing  district  in  which  the  real  property 
so  affected  is  located.  The  taxes  so  levied  upon  the  property  affected  by  such 
mortgage  or  other  security  shall  be  a  lien  upon  the  property.  The  taxes  upon 
.such  security  shall  constitute  a  lien  upon  said  security,  and  also  upon  the  real 
property  covered  thereby,  and  may  be  paid  by  either  party  to  such  security.  If 
paid  by  the  mortgagor  or  holder  of  the  real  property,  and  such  portion  as  was 


136  THE   NATIONAL   CIVIC   FEDERATION. 

assessed  to  the  mortgagee  shall,  unless  otherwise  especially  provided  by  contract, 
be  considered  and  treated  as  a  payment  on  any  interest  that  may  be  due,  or  if 
there  is  no  interest  due,  then  as  a  payment  of  so  much  principal.  If  paid  by 
the  mortgagor  or  holder  of  the  security,  such  portion  as  was  assessed  to  the 
mortgagor  or  owner  of  the  fee  shall  become  a  lien  upon  the  land  or  real  property, 
and  be  added  to  all  other  obligations  and  become  subject  to  the  same  terms  and 
conditions  as  such  mortgage  or  other  security:  Provided,  That  it  shall  be 
unlawful  for  either  party  to  pay  the  portion  of  the  tax  assessed  to  the  other 
until  after  the  expiration  of  thirty  days  from  the  time  the  warrant  for  the 
collection  of  taxes  has  been  placed  in  the  hands  of  the  Treasurer:  Provided 
further,  That  if  the  said  mortgagee  shall  neglect  or  refuse  to  pay  the  tax  assessed 
to  him  as  the  holder  of  any  such  mortgage,  deed  of  trust,  land  contract,  or 
other  obligation,  the  Treasurer  shall  proceed  to  collect  the  same  from  the  mort- 
gagor or  holder  of  said  real  property,  in  the  same  manner  as  is  provided  by 
law  for  collecting  other  taxes,  and  any  Selinquent  tax  accruing  by  reason  of 
the  failure  to  collect  the  tax  assessed  upon  any  such  mortgage,  deed  of  trust,  land 
contract,  or  other  obligation,  may  be  returned  against  the  said  land  in  the  same 
manner  as  other  delinquent  taxes.  If  any  security  or  indebtedness  shall  be 
paid  by  any  such  debtor  or  debtors  after  the  tax  shall  have  become  a  lien  upon 
the  real  property  affected  thereby,  the  amount  of  the  tax  levied  shall  become 
an  offset  against  said  indebtedness." 

Section  24  is  as  to  the  manner  of  assessing. 

Mr.  Purdy  in  his  paper  refers  to  the  report  of  the  Michigan  Tax  Com- 
mission. That  is  something  we  have  not  any  of  us  in  Michigan  been  able  to 
see.  We  have  seen  a  great  many  things  that  have  been  uttered  by  members 
of  the  Commission,  or  somebody  in  their  behalf,  but  the  report  of  the  Com- 
mission has  not  as  yet  been  issued.  The  Tax  Commission,  it  must  be  remembered, 
is  a  new  body,  and  as  every  one  of  those  men  is  a  personal  friend  of  mine  I 
think  I  shall  not  be  misunderstood  when  I  say  that  but  one  of  them  ever,  before 
his  appointment,  something  over  a  year  ago,  had  anything  to  do  with  the 
question  of  taxation.  As  to  the  question  of  the  taxation  of  railroad  property 
specifically,  or  by  valuation,  I  am  in  favor  of  the  ad  valorem  taxation  of  property, 
but  it  must  be  remembered  that  my  own  State  has  just  gone  to  the  ad  valorem 
taxation  of  railroad  property,  dropping  the  specific  tax,  which  has  been  eminently 
satisfactory,  except  as  to  the  rate,  which  might  have  been  amended.  I  Sjay 
satisfactory,  except  for  agitation  purposes;  and  an  unhealthy  sentiment,  as  some 
of  us  believe,  has  aroused  the  Legislature  to  pass  an  ad  valorem  tax  law  and  to 
assess  those  taxes  on  the  railroads.  It  must  be  remembered  that  those  taxes 
go  into  the  Primary  School  Fund.  The  Tax  Commission  has  been  increased  by 
two  members  because  the  Legislature,  by  reason  of  some  utterances  that  had 
been  made,  was  not  satisfied  that  the  corporation  would  have  altogether 
fair  treatment  from  the  Board  as  it  was  then  constituted. 

Mr.  Hines  :  I  wish  to  answer  very  briefly  Mr.  Bemis'  suggestion.  I  would 
say  in  the  first  place  as  I  said  this  morning,  or  intended  to  say,  that  in  none 
of  the  countries  of"  the  continent  of  Europe,  so  far  as  I  knew,  were  all  the  rail- 
roads operated  by  the  government.  Of  course,  we  all  know  a  great  many  are. 
I  saw  a  careful  analysis  made  a  few  years  ago  as  to  the  State  and  government 
ownership  of  railroads  made  by  a  responsible  gentleman,  in  which  he  made  the 
statement  that  the  only  two  countries  in  the  world  in  which  all  the  railroads 
were  operated  by  the  government  were  Nicaraugua  and  Egypt.  Of  course,  many 
in  Europe  are  operated  by  the  government.    The  point  I  suggested  was  that  the 


NATIONAL   CONFERENCE   ON   TAXATION.  137 

country  from  which  we  drew  our  legal  principles  had  never  operated  the 
railroads. 

Referring  to  his  suggestion  as  to  the  exercise  of  the  power  of  eminent 
domain,  we  all  admit  that  that  entitles  the  public  to  control  the  railroads 
to  a  certain  extent.  But  that  is  not  the  sole  basis  on  which  the  regulation  rests. 
It  is  the  fact  that  it  is  affected  with  the  public  use.  We  are  bound  to  admit 
it  is  affected  with  the  public  use  within  the  meaning  of  that  term.  It  is  not 
true  that  there  is  no  competition  in  the  railroad  business,  nor  is  it  true  that 
there  is  unlimited  competition  in  any  other  business.  It  is  simply  a  question 
of  degree,  and  it  depends  on  the  development  of  combinations  as  to  how  far 
other  lines  of  business  will  come  into  the  class  now  occupied  by  railroads 
as  so  affected  with  the  public  use  as  to  admit  of  regulation  in  the  matter  of 
their  prices.  But  the  point  I  make  notwithstanding  that,  is  that  when  you 
regulate  railroads  in  the  matter  of  their  prices,  in  the  matter  of  their  attiude 
toward  the  public,  you  have  exhausted  the  rights  that  come  to  the  public  out 
of  the  fact  that  their  business  is  affected  by  public  use,  and  what  is  then  left 
is  the  private  interest  of  the  individuals  who  own  the  property.  When'  you 
come  to  tax  the  railroads,  you  tax  that  interest,  and  the  point  I  made  was 
that  it  should  be  taxed  like  other  private  interests  of  other  individuals.  I 
have  not  the  figures  as  to  the  present  income  the  farmer  or  the  manufacturer 
pays,  but  I  wish  to  suggest  that  if  the  farmer  or  manufacturer,  or  people 
generally  paid  in  taxes  to  the  State  and  subdivisions  of  the  State  twenty  per 
cent,  of  the  difference  between  their  gross  receipts  and  their  operating  expenses 
that  there  would  not  be  any  ti-ouble  about  the  tax  question,  nor  would  there  be 
if  it  were  ten  per  cent,  or  five  per  cent.  When  a  railroad  pays  twenty  per 
cent,  of  the  difference  between  its  gross  receipts  and  operating  expenses,  that  does 
not  take  out  the  interest  on  the  bonded  debt  or  anything  of  the  sort.  I  say  it  is 
grossly  and  palpably  overtaxed. 

The  Chairman  recognized  Mr.  Samuel  B.  Clark,  of  New  York. 

Mr.  Bemis  :  I  want  to  say  a  word  in  introducing  Mr.  Clark.  He  does 
not  know  I  am  going  to  say  this.  A  few  months  ago  Prof.  Seligman,  quite 
.innocently,  I  think,  in  a  review  of  the  mortgage  tax  law  in  New  York  State, 
which  failed  lately,  had  occasion  to  say  that  it  failed  because  it  was  evidently 
drawn  by  such  an  astute  attorney  that  it  would  reach  the  object  for  which 
it  was  designed  as  no  other  law  had  yet  been  able  to  do.  I  happened  to  know 
that  this  law  which  would  have  done  that,  and  which  was  defeated,  was  drafted 
by  Mr.  Clark,  and  it  occurred  to  me  that  we  would  all  like  to  hear  from  him. 
He  was  not  aware  that  I  was  going  to  say  this. 

Mr.  Clark:  Mr.  Chairman,  there  have  been  so  many  questions  discussed 
here  that  I  feel  a  little  dizzy  and  hardly  know  what  to  speak  about.  Perhaps 
the  reason  I  supported  the  mortgage  tax  law  it  may  not  be  out  of  place  to 
mention.  I  did  it  not  because  I  believe  in  mortgage  taxation,  certainly  not. 
I  believe  it  would  be  better  for  all  classes  of  community,  the  landowner  and  the 
borrower,  if  mortgages  were  exempt  from  taxation.  But  in  New  York  we 
have  under  the  general  property  tax  a  tax  on  mortgages,  and  it  is  not  a  question 
of  whether  we  should  tax  mortgages,  but  how  we  shall  ta.x  them  best.  Under 
the  general  property  tax  law,  mortgages  largely  escape  taxation.  They  are  not 
revenue  producers  to  any  great  extent.  In  the  few  cases  where  they  are  caught 
the  owner  of  the  mortgage  suffers  most  cruelly.  It  is  an  outrage  and  an 
abomination,  ancj  I  can  think  of  no  effort  of  vituperation  that  is  sufficient  to 
describe  what  the  mortgage  tax  of  New  York  is  when  it  has  actually  been 


138  THE   NATIONAL   CIVIC   FEDERATION. 

enforced.  In  those  cases  where  the  tax  has  to  be  paid,  it  is  a  tax  of  from  one- 
third  to  over  a  half  of  the  interest,  faUing  upon  those  who  can  least  afford  to 
pay.  The  tax  in  this  State  has  another  bad  effect.  Under  the  general  property 
tax  there  are  enormous  exemptions.  The  personal  property  of  life  insurance 
companies  and  of  savings  banks,  until  this  year,  when  there  has  been  some  slight 
burden  put  upon  them,  has  been  exempted  from  taxation  in  this  State.  They 
control  a  loan  fund  amounting  to  two  thousand  million  dollars,  a  very  large 
part  oi  the  loan  fund  of  this  State.  All  other  owners  of  capital  that  would 
naturally  go  into  such  loans  have  to  come  into  competition  with  them.  They 
are  taxed  unless  they  adopt  roundabout,  circuitous,  and,  as  many  think,  improper 
modes  of  escaping.  The  result  of  that  is  that  they  are  kept  out  of  the  competi- 
tion, and  the  life  insurance  companies  and  the  savings  banks  have  had  in  a  very 
real  sense  a  monopoly  of  the  loan  market  of  the  State.  How  have  they  used 
it?  These  great  funds,  this  two  thousand  millions  of  money  which  they  have 
for  loaning  purposes,  is  in  the  hands  of  comparatively  few  men  who  meet 
together,  who  know  each  other,  who  consider  what  is  the  best  policy  for  their 
institutions,  and  without  any  combination  in  the  sense  of  a  contract,  but  yet, 
from  the  community  of  interest,  from  understanding  each  other,  they  have  largely 
adopted  this  policy  that  they  will  loan  these  funds  only  on  improved  urban 
properties,  except  in  special  cases  where  special  proof  and  evidence  of  the 
security  is  given.  The  result  of  that  is  in  this  State,  and  has  been,  that  the 
rural  communities  have  not  had  the  advantages,  to  a  very  large  degree,  that 
comes  from  ability  to  borrow  for  the  sake  of  improvement.  There  has  been 
a  tendency  from  this  control  of  the  loan  capital  of  the  State  to  concentrate 
improvement  in  the  cities  and  to  leave  country  districts  unimproved  and 
undeveloped.  Those  were  the  conditions  which  we  had  to  face,  which  the 
Tax  Committee  of  which  I  was  counsel  had  to  face.  It  was  to  meet  those 
conditions  as  far  as  we  could,  with  this  other  that  it  was  impossible  in  this 
State  to  abolish  the  tax  on  mortgages  owing  to  the  prevailing  sentiment,  that 
we  did  devise  a  scheme  of  mortgage  taxation  which  as  being  better  than 
the  present  system  I  approved.  At  the  same  time,  if  I  could,  I  would  abolish  all 
such  taxation. 

The  Chairman  :  The  gentleman's  time  has  expired. 

Mr.  Bemis  :     I  move  that  he  be  allowed  to  continue. 

A  Member:  I  second  the  motion.  I  would  like  to  get  an  outline  of  this 
law. 

The  Chairman  put  the  question  on  Mr.  Bemis'  motion,  and  the  same  was 
unanimously  carried. 

Mr.  Clark  :  The  fundamental  principle  was  to  take  mortgages  out  of  what 
we  mistakenly  call  property  tax  in  this  State,  personal  property  tax,  which, 
by  the  way,  is  not  a  property  tax  at  all,  but  a  pure  personal  tax,  and  make  it 
a  real  property  tax  as  in  the  case  of  land,  and  then  to  levy  a  rate  upon  it 
that  was  comparatively  low,  five  mills  on  the  dollar  of  the  principal  of  the  debt. 
That  tax  was  to  be  enforced,  not  by  putting  any  obligation  on  anybody  in 
the  world  to  pay  it,  not  on  the  lender,  not  on  the  borrower,  but  the  State 
laid  its  hand  on  the  property,  on  the  evidence  of  it  as  found  in  the  recording 
offices,  and  said:  "Unless  this  is  paid  at  a  certain  time  that  property  will  be 
sold,  and  the  purchaser  will  get  the  same  title  that  he  would  have  if  the  owner 
of  the  bond  and  mortgage  made  a  voluntary  assignment."  That  was  the  theory. 
It  required  in  order  to  work  it  out  quite  an  elaborate  bill  to  cover  all  the 
contingencies,  and  to  bring  them  within  those  categories,  but  it  is  a  bill  that 


NATIONAL   CONFERENCE   ON    TAXATION.  139 

if  enacted  I  have  no  doubt  would  produce  ten  millions  of  revenue  to  the  State, 
and  would  have  resulted  in  the  abolition  of  the  general  property  tax  for  State 
purposes,  and  would  have  relieved  the  land  owners  in  general  from  so  much 
of  the  taxes  that  they  have  been  paying,  and  would  have  left  the  door  open 
for  what  so  many  of  us  want  to  see  the  opportunity  and  power  in  the  localities 
to  determine  and  work  out  for  themselves  their  own  salvation  in  the  matter 
of  taxation. 

Mr.  Gabfield:  Mr.  Chairman,  I  do  not  care  to  take  but  a  few  moments' 
time,  but  I  desire  to  say  a  word  in  connection  with  the  personal  property  tax  and 
especially  the  intangible  feature  of  it.  I  think  all  who  have  looked  into  the 
Indiana  and  Ohio  systems  agree  that  so  far  as  tangible  property  is  concerned 
there  is  little  difficulty  in  getting  that  on  a  tax  duplicate,  but  I  have,  as  yet,  been 
unable  to  learn  the  success  of  the  Indiana  system  in  reaching  the  intangible 
personal  property  which  is  not  the  property  of  the  domestic  corporations.  The 
system  as  suggested  in  Indiana  is  in  vogue  in  Ohio  relative  to  certain  classes  of 
corporations.  The  corporation  makes  the  return  to  the  State  officers.  They 
can  readily  fix  the  whole  value  of  the  corporation  and  can  include  the  franchise 
value.  That  then  may  be  assessed  against  the  corporation,  and,  of  course, 
the  evidence  of  ownership,  namely,  the  stock  of  that  corporation,  is  no  longer 
sought,  and  hence  is  not  a  subject  of  taxation.  But  the  question  that  presents 
itself  to  my  mind  is  how,  under  the  Indiana  system,  and  to  what  amount  under 
the  Indiana  system,  are  the  Assessors  able  to  obtain  a  return  of  intangible 
personal  property  which  is  not  the  evidence  of  ownership,  or  the  bonds  of 
foreign  corporations.  As  to  that  point  I  beg  leave  to  offer  a  suggestion,  and  it 
comes  in  line,  also,  with  the  question  of  mortgage  taxation.  There  is  no  doubt 
that  the  system  suggested  by  the  gentleman  from  Iowa  and  others  does  give 
us  a  method  by  which  the  mortgage  may  be  made  the  subject  of  taxation,  but 
it  does  not  afford  a  remedy  for  imposing  upon  the  owner  of  the  land  the  addi- 
tional burden  of  the  tax  upon  the  mortgage.  By  whatever  device  you  may  tax 
the  mortgage,  you  may  rest  assured  that  the  loaner  of  the  money  is  going  to 
take  that  tax  out  of  the  borrower  of  the  money  by  some  indirect  method.  The 
interest  rate  may  not  on  the  surface  be  added  or  increased,  but  in  every  case  it 
has  developed  that  the  borrower,  himself,  ultimately  pays  the  tax. 

Before  taking  my  seat,  Mr.  Chairman.  I  wish  to  ask  the  gentleman  from 
Indiana  how  much  intangible  personal  property  appears  upon  the  grand  duplicate 
of  the  State  of  Indiana.  I  mean  by  that,  bonds  of  domestic  corporations,  notes 
which  are  secured  by  mortgages,  and  the  stocks  of  foreign  corporations.  Can 
you  tell  me  how  much,  in  gross,  appears? 

Mr.  Taylor:    We  have  not  made  any  separation. 

Mr.  Garfield:     So  you  cannot  give  me  that? 

Mr.  Taylor:    No. 

Mr.  Garfield:  As  I  understand  it,  the  total  personal  property  duplicate  is 
four  hundred  million  dollars.  I  find  by  reference  to  the  census  reports  of  1890, 
which  figures  arc  nine  years  old,  that  the  total  personal  property,  that  is,  the 
tangible  personal  property,  as  given  by  the  census  report  as  the  wealth  of  Indiana 
in  1890  was  eight  hundred  and  seven  million  dollars.  That  did  not  include 
intangible  personal  property.  It  did  not  include  mortgages.  On  that  showing 
of  1890  you  have  fifty  per  cent,  of  the  tangible  personal  property  upon  your  tax 
duplicate. 

Mr.  Taylor:     That  is  a  larger  per  cent,  than  our  real  estate. 

Mr.   Garfield  :     Just  a  moment.     That   is  the  tangible  personal   property. 


I40  THE    NATIONAL   CIVIC    FEDERATION. 

You  had  in  1890  a  hundred-  and  ten  miUion  dollars  of  mortgages  by  the  census 
report.  I  would  like  to  know  what  portion  of  that  hundred  and  ten  millions 
appears  on  the  tax  dupHcate.  Then  another  question.  In  determining  the 
value  of  the  personal  property  as  given  by  the  census  of  1890,  the  value  of  the 
franchises  of  all  street  railroad  corporations  and  the  value  of  the  franchises 
of  all  public  service  corporations,  are  not  included  in  the  census  report  as  to 
the  value  of  the  property.  In  that  eight  hundred  and  ten  million  dollars  none 
of  the  things  other  than  the  actual  tangible  personal  property  appears.  What  we 
maintain  is  simply  this,  Mr.  Chairman.  It  is  not  an  assault  upon  the  principle 
of  taxing  personal  property,  it  is  an  assault  upon  the  methods  by  which  we 
have  been  absolutely  unable  throughout  this  whole  country  to  bring  the  intangible 
personal  property  upon  the  tax  duplicate.  That  is  the  question ;  not  as  to 
tangible  personal  property.  I  would  ask  the  gentlemen  from  Indiana  if  they 
can  explain  to  me  where  the  intangible  personal  property  appears  on  their 
duplicate. 

The  Chairman  :  Further  discussion  will  have  to  be  postponed,  as  we  have 
other  matters  on  the  programme,  and  we  can  refer  to  it  again  later. 

Before  we  go  to  the  remaining  papers  I  would  ask  the  Chairman  of  the 
Committee  appointed  upon  Programme  and  Organization  if  it  is  prepared  to 
present  its  report? 

Mr.  Seligman  :  Mr.  Chairman,  in  presenting  this  report  I  should  say  that 
the  report  is  now  presented  simply  for  the  information  of  the  members,  and  I 
would  suggest  that  action  on  the  report  be  deferred  until  after  the  next  two 
papers  have  been  read,  so  that  we  can  close  with  some  action  on  the  report. 

Mr.  Seligman  here  read  the  report  of  the  committee  as  follows : 

Resolved,  That  it  is  the  sense  of  this  Conference  that  a  permanent  organiza- 
tion be  effected  for  the  promotion  of  interstate  comity  in  taxation,  and  of  tax 
reform  in  general,  and  to  that  end  a  committee  of  fifteen  be  appointed  by  the 
Chair  to  act  as  an  Executive  Committee  until  another  meeting  of  this  Conference, 
artd  that  the  Executive  Committee  be  authorized  to  select  a  general  committee  of 
one  hundred  with  at  least  one  member  from  each  State. 

Resolved,  That  the  Executive  Committee  be  authorized  to  take  proper  steps 
for  the  collection  and  dissemination  of  information  in  regard  to  State  and 
local  taxation,  and  for  the  attainment  of  the  other  objects  of  the  Conference. 

Mr.  Seligman  :  The  Committee  would  like  to  add  in  conclusion  some 
definite  resolutions  as  art  outcome  of  the  labors  of  this  Conference.  We  prob- 
ably should  all  be  prepared  to  agree  and  disagree  on  a  great  many  points.  It 
is  impossible  that  it  should  be  otherwise.  I  think,  however,  that  from  all  the 
discussions  that  have  taken  place  in  the  last  two  days,  one  thing  is  evident, 
that  we  are  all  agreed  upon  some  fundamental  points.  I  think  those  funda- 
mental points  are  embodied  in  these  propositions: 

Whereas,  Modern  industry  has  overstepped  the  bounds  of  any  one  State, 
and  commercial  interests  arc  no  longer  confined  to  merely  local  interests ;    and, 

Whereas,  The  problem  of  just  taxation  cannot  be  solved  without  con- 
sidering the  mutual  relations  of  contiguous  States;    be  it 

Resolved,  That  this  Conference  recommend  to  the  States  the  recognition 
and  enforcement  of  the  principles  of  interstate  comity  in  taxation.  These 
principles  require  that  the  same  property  should  not  be  taxed  at  the  same 
time  by  two  State  jurisdictions,  and  to  this  end  that  if  the  title  deeds  or 
other  paper  evidences  of  the  ownership  of  property,  or  of  an  interest  in 
property  are  taxed,  they  shall  be  taxed  at  the  situs  of  the  property,  and  not 


NATIONAL   CONFERENCE   ON    TAXATION. 


41 


elsewhere.  These  principles  should  also  be  applied  to  any  tax  upon  the 
transfer  of  property  in  expectation  of  death,  or  by  will,  or  under  the  laws 
regulating  the  distribution  of  property  in  case  of  intestacy.     And,  finally 

Resolved,  That  State  and  local  revenues  should  be  so  separated  as  to 
methods  and  subjects  of  taxations  as  to  give  to  the  counties  and  municipali- 
ties the  largest  powers  of  local  option  in  taxation. 

The  Chairman  :  Gentlemen,  those  matters  will  be  laid  over  until  after  the 
other  papers. 

Mr.  William  T.  Creasy,  of  Pennsylvania,  will  present  briefly  some  features 
of  the  tax  laws  of  Pennsylvania  which  have  been  referred  to. 

Mr.  Creasy  here  read  his  paper,  which  was  received  with  applause,  as 
follows : 

A   FARMER'S   VIEW   OF   THE   TAX   SYSTEM   OF   PENNSYLVANIA' 

BY    WILLIAM   T.    CRKASV. 

Secretary  of  Legislative  Committee  of  Pennsylvania   State   Grange. 


Gentlemen,  there  should  be  but  one  tax  levied  for  all  general  purposes, 
and  it  should  not  be  in  any  way  connected  with  the  United  States  Internal 
Revenue  System.  It  would  in  effect  be  an  income  tax.  It  should  be  levied 
under  a  law  sufficiently  comprehensive  to  reach  every  taxpaying  interest,  and 
make  all  persons,  corporations,  trusts,  joint-stock  associations,  co-partnerships, 
limited  partnerships  or  any  nondescript  interests  contribute  to  the  support 
of  government  according  to  their  ability  to  do  so.  The  common  laborer 
should  be  a  contributor  to  the  tax  fund  as  well  as  the  large  trust  representing 
millions  of  dollars  of  capital. 

A  tax  thus  levied  should  be  apportioned  for  State,  county,  city,  borough, 
school,  road,  poor  or  other  general  purpose  according  to  the  wants  of  the 
State,  county,  city,  borough,  township,  school  and  poor  district  entitled  to 
receive  its  portion. 

If  it  is  not  deemed  advisable  or  feasible  to  have  but  one  tax,  as  aforesaid, 
then  there  should  be  some  revision  of  the  Pennsylvania  system  so  as  to  make 
the  burdens  of  taxation  bear  more  equally  than  they  now  do  on  the  different 
subjects  of  taxation.  Some  interests  are  not  bearing  their  proper  proportion 
of  tax,  others  escape  entirely  and  then  again  others  are  too  heavily  taxed. 
No  general  Pennsylvania  tax  law  has  been  passed  in  many  years  unless  it 
was  O.  K.'d  by  the  great  corporations  of  the  State. 

Perhaps  the  most  practical  way  of  appraising  transportation  and  trans- 
mission companies  and  such  other  companies  that  have  stocks  and  bonds, 
would  be  to  appraise  the  capital  stock  for  what  it  would  bring  in  the  market 
and  add  to  this  the  value  of  the  bonds,  as  representing  the  true  value  of  the 
property,  and  apportion  it  to  the  several  divisions  of  the  government  according 
to  the  mileage  within  its  territory  as  a  basis  for  the  authorities  of  the  different 
divisions  of  government  for  levying  their  taxes. 

While  real  estate  could  be  more  equitably  appraised  by  the  local  author- 
ities, under  the  direction  of  the  County  Commissioners,  as  at  present  in 
Pennsylvania. 

In  our  State,  personal  and  corporate  property  are  taxed  only  for  State 
purposes  and  real  estate  for  county  and"  local  purposes. 


142  THE   NATIONAL   CIVIC   FEDERATION. 

All  corporations  possessing  the  right  of  eminent  domain  are  exempt  under 
existing  laws  from  taxation  on  so  much  of  their  property  as  is  necessary  to 
the  exercise  of  their  corporate  franchises.  It  is  true  they  pay  tax  on  their 
capital  stock  and  gross  receipts  in  some  instances,  but  in  addition  thereto  they 
should  pay  tax  for  local  purposes  on  the  property  representing  their  capital 
stock  the  same  as  other  corporations.  The  road-bed,  rolling  stock,  depots, 
warehouses,  water  stations,  roundhouses  and  repair  shops  of  railroad  com- 
panies and  the  reservoirs  and  lines  of  pipe  of  water  and  gas  companies  in 
Pennsylvania  are  worth  millions  of  dollars,  but  they  are  now  exempt  from 
taxation  for  local  purposes.  The  privileges  they  enjoy  are  greater  than  those 
of  the  ordinary  corporation,  and  for  that  reason  all  their  property  of  every 
kind  and  description  should  be  taxed  for  local  purposes.  Take,  for  instance, 
the  Standard  Oil  Company,  which  operates  extensively  in  Pennsylvania,  and 
has  lines  of  pipe  for  the  transportation  of  oil  extending  from  our  oil  regions 
to  the  seaboard.  Its  principal  charter  is  the  National  Transit  Company,  a 
duplicate  of  the  charter  of  the  Pennsylvania  Company  to  be  found  in  the 
Pamphlet  Laws  of  Pennsylvania  of  1870,  page  1025,  and  of  1871,  page  92.  It 
has  authority  to  do  anything  except  carry  on  the  business  of  banking,  and  it 
also  enjoys  the  right  of  eminent  domain.  For  the  year  1892,  said  National 
Transit  Company  and  other  associate  interests  of  the  Standard  Oil  Company 
in  Pennsylvania,  to  wit,  the  Atlantic  Refining  Company,  Forest  Oil  Company 
and  Southern  Pipe  Lines,  paid  into  the  State  treasury  for  taxes  of  all  kinds 
$192,809.65,  when  $1,000,000  would  have  been  a  moderate  sum  for  them  to  pay, 
taking  into  consideration  their  large  earnings  and  dividends  and  the  fact  that 
they  pay  nothing  locally  on  their  lines  of  pipe  or  any  property  of  the  Transit 
Company  necessary  to  the  operation  of  its  works.  Other  corporations  sim- 
ilarly situated  do  not  pay  the  tax  they  are  able  to  pay  and  should  with  a  full 
measure  of  justice  pay. 

Manufacturing  companies  are  relieved  entirely  from  the  payment  of  taxes 
on  their  capital  stock.  This  is  not  fair  or  just,  and  there  is  no  more  reasop 
for  exempting  their  capital  stock  from  taxation  than  there  is  for  exemptmg 
from  taxation  the  capital  stock  of  a  coal  company  that  pays  heavy  local  tax 
on  the  property  which  its  capital  stock  represents,  as  well  as  State  tax,  nor 
the  property  of  an  incorporated  mercantile  company  that  pays  a  capital  stock 
tax  and  a  mercantile  license.  There  may  be  reasons  for  grading  a  tax  on  some 
broad  lines  so  as  to  make  a  light  or  nominal  tax  on  the  capital  stock  of  man- 
ufacturing companies  that  are  struggling  under  a  load  of  debt  for  an  exist- 
ence; but  to  say  that  large  concerns  like  the  Bethlehem  Steel  Company,  the 
Pennsylvania  Steel  Company,  the  Cambria  Steel  Company  and  the  Carnegie 
interests,  that  earn  and  pay  large  dividends,  should  go  scot  free  from  the 
payment  of  tax  on  their  capital  stock  is  equal  to  saying  that  one  man  should 
pay  the  tax  of  another.  What  is  true  as  to  manufacturing  companies  is  also 
true  as  to  building  and  loan  associations..  There  is  no  reason  either  why 
insurance  companies  should  get  off  with  a  three-mill  tax  on  their  capital  stock 
when  other  corporations  have  to  pay  five  mills.  Our  great  financial  institu- 
tions are  paying,  as  will  be  seen  by  the  statistics  presented  in  this  paper,  a 
very  small  tax  rate.  This  is  also  a  break  in  the  rule  of  uniformity  required 
by  our  State  constitution. 

Real  estate  now  bears  more  than  its  just  share  of  tax,  and  this  can  be 
remedied  by   the   commonwealth   assuming  some  of  its   burdens,   if   local   tax 


NATIONAL   CONFERENCE   ON   TAXATION.  ,43 

is  continued  to  be  forbidden  on  corporate  property  worth  many  millions  of 
dollars. 

Under  our  system  the  farmers  of  Pennsylvania  are  being  grossly  discrim- 
inated against  and  driven  out  of  business,  as  shown  by  the  census  report  of 
1900,  there  being  a  decrease  in  the  rural  population  in  twenty-two  counties  of 
over  a  hundred  thousand  in  the  last  decade.  And  as  an  illustration  as  to 
how  this  system  works  take  two  men:  The  one  investing  $5,000  in  a  farm  is 
taxed  from  $60  to  $90,  while  the  other,  investing  $5,000  in  bonds  and  mort- 
gages, is  taxed  $20,  making  a  gross  discrimination  of  from  $40  to  $70  between 
the  two  citizens.  Apply  this  same  comparison  with  mercantile  business  or 
transportation  and  transmission  companies,  and  we  find  still  greater  dis- 
crimination. 

This  discrimination  does  not  only  apply  to  real  estate,  but  it  is  equally  as 
great  between  the  corporations  themselves,  as  shown  by  the  following  Penn- 
sylvania Official  State  reports  embracing  twelve  of  the  leading  industries  of 
the  commonwealth,  as  follows : 

Real  Estate. 

Per  Report  Secretary  Internal  Affairs,  1899.     Part  I  and  II,     Page  4  B. 

Value  of  real  estate  taxable $2,728,163,336.00 

Total  taxes  paid 44,210,043.03 

Average  rate  of  taxation  16^  mills. 

Personal  Property.     (Money  at  Interest.) 

Report  Secretary  of  Internal  Affairs,  1899.     Page  B  253. 

Personal  property    (money  at  interest) $697,307,883.00 

Taxes  paid.    See  Aud.  Gen.  Report — 1899 — page  2 2,764,258.48 

Average  rate  of  taxation  4  mills. 

Mercantile  Property. 

Merchandise  in  stores,  estimated  (tax  conference) $300,000,000.00 

Mercantile  license  tax  1899.    Report  Aud.  Gen.,  page  2.  518,148.65 

Average  rate  of  tax  1.7  mills. 

Steam   Railroads. 

Per  Report  Secretary  Internal  Affairs — 1899 — page  705. 

Capital    stock    $1,1 18,267,610.00 

Funded    debt    1,007,01 1,038.00 

Amount  of  other  liabilities 185,689,468.00 


Total  steam  railroad  capital $2,310,968,116.00 

Of  the  above  amount  of  capital  reported  45  per  cent. 

represents  the  property   within   the    State,   or   a 

total  value  of  railroad  property  in  Pennsylvania...  $1,039,935,652.00 
Total  taxes  paid  1899 — Aud.  Gen.  Report— page  144...  2,839,385.41 

Average  rate  of  taxation  2^4  mills. 


144  THE   NATIONAL   CIVIC   FEDERATION. 

Passenger  Street  Railways. 

Report    Secretary   Internal   Aflfairs— Railroads,    Railways,    etc.— page   812. 

Capital  stock   $103,122,319.00 

Funded   debt    31,309,425.00 

Current    liabilities    13,139,149.00 

$147,570,893.00 

Street  Railways  Operated  by  Other  Companies. 
Pages  32  and  829— Report  Secretary  Internal  Affairs. 

Capital  stock   • $53,407,639.00 

Funded  and  unfunded  debt 41,649,487.00 

$95,057,126.00 

Total  passenger  street  railway  capital $242,628,019.00 

Total  taxes  paid  in  1899 — Aud.  Gen.  Report — page  154.  1,171,090.31' 

Average  rate  of  taxation  4^  mills. 

National  Banks. 
U.  S.  Treasury  Report  Comptroller,  Jan.  1901 — No.  21. 

Capital  stock $76,648,670.00 

Surplus    53,492,128.76 

Undivided  profits 15,266,533.62 

• $145,407,334.38 

Total  taxes  paid   1899 $431,582.25 

Average  rate  of  taxation  3  1-3  mills. 

Incorporated  State  Banks. 

Banking  Report   1899 — Part  I,  page  248. 

Capital   stock    $8,152,920.00 

Surplus $5,955,41978 

Undivided  profits    1,972,629.16 

$16,080,969.16 

Amount  of  tax  paid  State 71,412.51 

Mill  rate  a  little  less  than  4^. 

Incorporated  Savings  Institutions. 

Banking  Report   1899 — Part  I,  page  303. 

Capital    $1 10,200.00 

Deposits     7,515,626.59 

Undivided  profits    2,956,860.27 

$10,582,686.86 

Amount  of  taxes  paid •. 33,529.89 

Average  rate  of  taxation  3  mills. 

Domestic    and    Foreign    Building    &    Loan    Associations    and    Homestead 

Companies. 

Capital    $112,120,436.61 

Total  taxes  paid  1899 33,203.18 

Average  rate  of  taxation  0.3  mill. 


NATIONAL   CONFERENCE   ON   TAXATION. 


145 


Telegraph  and  Telephone  Companies. 

Per  Report   Secretary   Internal   Affairs,    1899 — page  687 — Telegraph   and   Tele- 
phone Companies. 

Capital  stock,  funded  debt,  current  liabilities $150,644,47545 

Proportion  in  Pennsylvania,  20  per  cent,  estunated  within 

the   State    30,128,895.09 

Taxes  paid — Report  Aud.  Gen.  1899 — page  161 95,432.76 

Average  rate  of  taxation  3  1-5  mills. 

Canals  and  Navigation  Companies. 
Per  Report  Sec.  Int.  Affairs,   Railroads,  Canals,  etc. — page  689. 

Capital  stock   $24,463,462.00 

Funded   debt    29,347,955.86 


Total   value  canals   and   navigation   companies   re- 
ported            $53,811,417.86 

Amount  of  taxes  paid — Aud.  Gen.  Report  1899 — pages  55, 

142,  155  and   166 143,192.92 

Average  rate  of  taxation  23-5  mills. 

I  quote  from  an  address  issued  by  the  Legislative  Committee  of  the  State 
Grange  in  an  address  to  the  Pennsylvania  Legislature  of  1901  showing  the 
amount  of  tax  of  all  kinds  collected  for  the  year  1899: 

Aggregate  Taxes  Collected  for  State  Purposes,  $15,458,316.97. 

State  revenues  collected  from  licenses,  fees,  escheats, 
direct  collateral  inheritance,  interest  on  public  moneys, 
bonds,    etc $6,611,384.18 

Balance  collected  from  taxes  on  personal  and  corporate 

property  for  State  purposes 8,846,932.79 

Average  rate  of  taxation  on  personal  and  corporate  property  3  mills. 

Entire    Amount    of    Taxes    Collected    for    all    Governmental    Purposes 

Within  the  State. 

Taxes  collected  for  State  purposes $15,804,570.51 

Taxes  collected  for  county,  city  and  borough  purposes. . . .     19,854,226.70 

Licenses  of  all  kinds  collected 6,067,833.51 

Taxes  collected  for  support  of  poor 2,603,482.18 

Taxes  collected  for  school  purposes 13,612,622.76 

Taxes   collected    for   construction   and    repair   of   streets, 

roads  and  bridges 11,312,528.50 

Total     $69,255,264.16 

Showing  an  increase  over  the  previous  year  of  $5,492,714.51. 

The  taxes  on  real  estate  increased  in  eight  years  from  $30,000,000  to 
$44,000,000,  or  over  46  per  cent.,  while  the  taxes  on  corporations  have  not 
materially  increased  under  the  Pennsylvania  system  of  taxing  personal  and 
corporate  property  for  State  purposes  only,  and  real  estate  for  local  purposes 
alone ;  the  burdens  of  taxation  have  grown  more  onerous  on  reax  estate  until 
the  rate  has  reached  si.xteen  and  a  half  mills  as  compared  with  three  mu7s  on 
personal   and   corporate   property. 


146  THE    NATIONAL    CIVIC    FEDERATION. 

The  taxes  paid  by  corporations,  insurance  companies  and  financial  insti- 
tutions for  the  last  seven  years  amounted  in  round  numbers  to  $49,000,000,  or 
a  yearly  average  of  $7,000,000.  This  includes  the  bonuses  paid  for  charters. 
Comparing  the  year  1893  with  1899,  it  will  be  noticed  that  after  deducting  the 
delinquent  taxes  paid  in  1899  which  were  due  from  former  years,  there  is  but 
little  increase  over  1893. 

Nothing  can  aid  more  in  educating  those  interested  in  taxation,  as  well 
as  others,  than  the  theories  and  discussion  of  this  and  similar  conventions. 

With  tax  reform  must  come  a  careful  and  economical  expenditure  of 
the  public  money. 

The  Chairman  :  The  next  on  the  programme  is  a  paper  by  Mr.  Hoffman,, 
of  the  Prudential   Insurance  Company. 

Mr.    Hoffman   here   read   the   paper   referred   to. 


THE  TAXATION    OF   LIFE   INSURANCE   INTERESTS. 


By   Frederick  L.   Hoffman. 
Statistician  of  the  Prudential  Ins.  Co.  of  America. 

This  paper  has  been  prepared  for  the  purpose  of  suggesting  to  experts 
on  the  subject  of  taxation  a  branch  of  inquiry  which  has  thus  far  received  but 
very  little  consideration,  and  which  yet  is  full  of  promise  of  most  practical 
and  far-reaching  results.  The  theory  and  practice  of  insurance  taxation  is 
usually  ignored  in  the  text-books  on  taxation  and  the  reports  of  Tax  Com- 
missioners, yet  the  taxation  of  insurance  interests  increases  from  year  to  year 
until  a  point  has  been  reached  where  additional  burdens  are  likely  to  imperil 
the  very  existence  of  the  business. 

To  a  large  extent  this  indift'erence  to  a  scientific  study  of  the  problem  of 
life  insurance  taxation  is  due  to  the  fact  that  life  insurance  in  itself  is  a  most 
complex  business,  and  taxes  have  been  imposed  rather  in  ignorance  of  the 
real  nature  of  the  insurance  contract  than  because  of  any  well-defined  con- 
ception of  the  ability  of  companies  to  pay  the  burdens  levied  upon  the  policy- 
holders. The  discussions  before  Tax  Commissions  or  ni  State  Legislatures 
and  Congress  are  proof  that  to  the  average  legislator  there  is  but  one  view- 
point of  the  matter,  and  that  is  the  vast  accumulation  of  assets  held  by  com- 
panies for  the  future  discharge  of  incurred  liabilities.  What  is  seen  is  the 
millions  of  dollars  of  funds;  what  is  not  seen  is  the  immense  liability  charged 
again.st  these  funds,  and  because  of  the  indifference  to  the  second  point  taxes 
are  recklessly  imposed  and  funds  are  diverted  from  their  proper  purpose  until 
a  point  has  been  reached  where  the  returns  to  policy-holder  have  diminished, 
where  the  cost  of  insurance  has  been  increased,  where  the  extension  of  the 
business  has  been  made  more  difficult,  and  where*  the  very  existence  of  the  busi- 
ness is  threatened  unless  a  radical  change  in  opinion  is  brought  about  in  the 
near  future  as  to  the  proper  scope  and  limits  of  the  taxation  of  life  insurance 
interests. 

The  taxation  of  life  insurance  interests  involves  the  present  and  future 
welfare  of  a  large  and  increasing  proportion  of  our  population,  representing 
the  most  intelligent,  industrious  and  thrifty  of  our  nation.  Briefly  stated  there 
are  to-day  in  this  country   13,000,000  insured   in   ordinary  and   indu.strial   level 


NATIONAL   CONFERENCE   ON   TAXATION.  147 

premium  companies,  who  pay  annually  in  ihe  aggregate  more  than  $300,000,000 
in  premiums.  Of  this  vast  sum,  representing  an  almost  inconceivable  amount 
of  prudence  and  self-denial,  $6,500,000  is  paid  to  the  National  Government, 
the  State  or  the  municipaHty  in  taxes  or  license  fees  of  one  form  or  another. 
In  other  words,  out  of  every  $100  collected  in  life  insurance  premiums,  $2.22 
is  paid  to  the  State  in  taxes;  or,  if  we  consider  the  payments  made  to  policy- 
holders, which  now  exceed  $160,000,000  per  annum,  $4.10  is  paid  to  the  State 
in  taxes  for  every  $100  paid  to  the  beneficiaries  of  life  insurance  policy-holders. 

If  it  is  true  of  the  general  theory  and  practice  of  taxation  in  this  and 
other  countries  that  *it  will  be  difficult  to  find  in  the  whole  realm  of  political 
economy  a  subject  more  generally  misconceived,  more  disfigured  by  false 
views,  more  degraded  by  a  partial  study."'  this  is  especially  true  of  that  branch 
of  the  subject  which  relates  to  the  taxation  of  life  insurance  interests.  It  is 
not  going  too  far  when  it  is  maintained  by  those  who  have  given  some  thought 
to  the  subject,  that  life  insurance  in  this  country  is  to-day  one  of  the  most 
heavily  taxed  institutions  making  directly  for  the  welfare  of  the  population 
and  for  the  diminution  of  public  burdens  which  otherwise  would  have  to  be 
provided  for  by  taxes  upon  other  interests.  While  erroneous  views  on  this 
subject  are  due  in  a  large  measure  to  the  intricate  nature  of  the  life  insur- 
ance business,  they  are  more  largely  due  to  the  fact  that  the  vast  accumula- 
tions of  life  insurance  companies  represent  an  exceptional  opportunity  for  the 
imposition  of  taxes  and  the  certainty  of  their  collection.  The  utmost  publicity 
is  given  to  all  the  essential  facts  pertaining  to  the  business;  the  amounts  of 
premiums  collected,  the  amounts  of  dividends  paid,  the  amounts  of  assets  and 
of  surplus  accumulated  are  given  in  fujl  in  the  annual  statement  of  the  com- 
panies to  the  different  Insurance  Departments.  Nothing  is  of  more  common 
occurrence  than,  on  occasion  of  local  need  for  additional  revenue,  to  place  an 
additional  tax  upon  life  insurance  interests,  and  yet  it  requires  but  a  brief 
consideration  of  the  real  interest  involved,  of  the  real  naturfc  of  the  business, 
to  make  it  clear  to  those  free  from  bias  or  prejudice  that  taxes  upon  life  insur- 
ance are  a  tax  upon  prudence,  a  tax  upon  thrift,  a  tax  upon  a  business  which 
should  be  free  from  all  burdensome  restrictions  to  enable  it  to  develop  and 
to  expand  to  the  highest  degree  of  possible  usefulness. 

It  is  one  of  the  most  common  errors  in  the  theory  of  life  insurance  taxation 
to  assume  that  life  insurance  itself  represents  capital.  Now,  capital  as  I  under* 
stand  it,  is  realized  wealth,  while  life  insurance  is  merely  a  promise  to  pay  a 
certain  sum  in  the  event  of  the  occurrence  of  a  contingency  provided  for  in  the 
policy.  Life  insurance  is  a  present  means  of  obtaining  a  certain  advantage  over 
an  uncertain  event,  and  it  is  on  this  ground,  though  not  on  this  ground  alone, 
that  life  insurance  or  the  premiums  paid  for  insurance  protection,  shouW  not  be 
considered  a  subject  of  taxation.  If  we  inquire  into  the  objects  and  nature  of  life 
insurance  and  the  relation  of  life  insurance  to  the  State,  we  find  that  the  primary 
object  of  this  form  of  thrift  is  to  provide  for  dependents,  for  widows  and 
orphans,  which  but  for  such  provision,  in  the  majority  of  instances,  would 
become  charges  or  wards  of  the  State.  By  just  so  much  as  this  is  avoided,  by 
just  so  much  as  women  and  children  are  made  independent  of  such  assistance, 
the  revenue  of  the  Nation,  or  of  the  State,  is  relieved  and  can,  therefore,  be 
devoted,  and  is  devoted,  to  the  development  of  other  interests  affecting  public 
welfare.  In  view  of  this  point  it  is  clear  that  life  insurance  should  not  be  a 
subject  of  taxation,  but  rather  to  the  contrary,  as  a  means  of  diminishing  public 


mS  the  national  civic  federation. 

burdens,  it  should  in  all  respects  receive  the  generous  consideration  of  the 
State. 

The  political  or  economic  justification  for  a  tax  on  life  insurance  is  in 
harmony  with  the  theory  advanced  by  McCulloch  that  "it  is  easily  assessed  and 
collected,"  but  it  is  contrary  to  his  conception  of  an  equitable  tax,  in  that  it  is 
not  "at  the  same  time  conducive  to  public  interests."  More  than  a  century 
ago  the  subject  matter  of  life  insurance  taxation  was  carefully  considered  by 
Mr-  Pitt  in  the  framing  of  the  English  Income  Tax  Bill  in  1798,  and  it  may  not 
be  out  of  place  for  me  to  repeat  the  language  then  used  and  which  is  as  applicable 
to  the  point  at  issue  as  if  it  had  been  advanced  to-day.  Under  the  English 
Income  Tax  Law  of  1798  incomes  were  exempted  from  the  payment  of  the  tax 
to  the  fxtent  of  the  premiums  paid  on  their  life  insurance.  In  defending  this 
clause  Mr.  Pitt  said  as  follows :  "There  is  one  case  which,  with  a  view  to  that 
class  who  are  really  willing  to  save  for  the  benefit  of  others  for  whom  they  are 
bound  to  provide,  makes  some  modification.  It  is  in  favor  of  those  who  have 
recourse  to  that  easy,  certain  and  advantageous  mode  of  providing  for  their 
families  by  assuring  their  lives.  In  this  Bill,  as  in  the  assessed  taxes,  a  deduction 
is  allowed  for  what  is  paid  on  this  account."  This  early  recognition  of  the  inti- 
mate relation  between  life  insurance  and  public  welfare  is  of  more  than  passing 
significance.  Life  insurance  in  England  was  then  in  its  very  infancy,  but  even 
at  that  stage  the  good  results  likely  to  follow  its  universal  extension  had  become 
manifest.  It  was  brought  out  in  the  evidence  submitted  to  a  special  Committee 
on  Assurance  Associations  in  1853  that  in  consequence  of  this  exemption  from 
taxation,  life  insurance  in  England  had  made  material  advances,  a  portion  of 
which  at  least  was  directly  attributed  to  the  relief  from  taxation.  Of  one  office, 
the  Equitable  (London),  it  was  stated  in  the  evidence  that,  while  during  the 
ten  years  preceding  the  passage  of  that  Act  the  increase  in  business  had  been 
but  $4,500,000,  the  increase  during  the  decade  following  the  passage  of  the 
Income  Tax  Law,  relieving  assurance  associations  from  the  payment  of  that  tax, 
had  been  $20,000,000.  The  principle  laid  down  in  1798  has  remained  the  law  of 
England  to  the  present  time,  and  there  is  no  tax  upon  life  insurance  in  any  form, 
except  a  small  stamp  tax  upon  policies,  which  has  practically  no  financial  impor- 
tance, the  amounts  annually  paid  on  this  account  being  so  small  that  the  same 
are  included  in  the  companies'  expense  account  under  postage  expeditures. 

The  principle  of  non-taxation  of  life  insurance  in  England  as  laid  down  by 
Mr.  Pitt  in  1798  has  been  frequently  reaffirmed  in  the  works  of  recognized 
authorities  on  economics  and  finance.  A  tax  on  insurance,  according  to  Mill,  as 
staled  in  his  Principles  of  Political  Economy,  "is  a  direct  discouragement  of 
prudence  and  forethought,"  and  this  view  is  practically  accepted  by  McCulloch 
who  even  more  forcibly  expressed  himself  to  the  point  that  a  tax  on  insurance 
"discourages  that  providence  and  foresight,  the  encouragement  of  which  ought 
to  be  an  object  with  all  prudent  governments;"  and  "seeing  the  vast  importance 
of  insurance,  it  may  well  be  doubted  whether  it  ought  to  be  charged  with  any 
duty,  however  slight."  With  particular  reference  to  taxation  of  insurance  inter- 
ests in  this  country,  the  subject  was  discussed  in  an  able  treatise  thirty-four 
years  ago  by  S.  Morton  Peto,  according  to  whom  "a  tax  on  insurance  is  a  ta:^ 
not  only  upon  industry,  but  upon  prudence  and  frugality,  and  the  American  sys- 
tem seems  to  be  far  worse  than  that  of  which  we  have  been  so  long  complaining 
in  Great  Britain,"  and  yet  the  conditions  confronting  insurance  companies  to-day 
are  vastly  more  serious  than  they  were  under  the  war  conditions  of  the  early 
sixties. 


NATIONAL   CONFERENCE   ON   TAXATION.  149 

THE  PRACTICE  OF  LIFE  INSURANCE  TAXATION. 

The  practice  of  life  insurance  taxation  is  a  matter  so  involved  and  com- 
plicated by  local  conditions,  varying  with  the  different  States  and  even  with  the 
municipalities  in  which  the  companies  operate,  that  it  would  consume  most  of  my 
time  to  touch  upon  even  the  most  general  facts  as  they  pertain  to  this  branch 
of  my  inquiry.  It  is  the  general  practice  of  States  to  impose  first  the  general 
property  tax  upon  the  real  estate  and  personal  property  of  the  companies  within 
the  reach  of  the  Tax  Assessor.  This  tax  in  1899  formed  about  15  per  cent,  of 
the  total  amount  paid  in  taxes  by  the  company  with  which  I  am  connected.  To 
this  tax  there  has  never  been  any  serious  objection  on  the  part  of  life  insurance 
companies,  the  burden  being  considered  a  proper  one  as  a  just  contribution 
toward  the  general  cost  of  State  government.  By  far  the  most  important  tax 
item  is  the  tax  on  premium  income,  which  may  vary  from  one  to  three  per  cent., 
according  to  the  State  in  which  the  company  transacts  business.  In  1899  the 
company  with  which  I  am  connected  paid  about  44  per  cent,  of  its  taxes  on  this 
account.  This  tax  on  premiums  is  an  unjust  burden  upon  the  business,  and 
both  inexcusable  and  unscientific.  The  tax  falls  alike  upon  new  premiums  for 
risks  just  incurred,  and  upon  renewal  premiums  on  risks  assumed  years  ago. 
You  can  readily  see  that  risks  assumed  years  ago  were  calculated  to  produce 
a  certain  result  on  the  assumption  of  a  known  mortality  and  four  per  cent 
interest.  The  imposition  of  taxes  upon  such  payments  must  needs  decrease  the 
return  to  policy-holders  and  increase,  in  consequence,  the  cost  of  insurance. 
If  carried  to  the  extreme,  especially  in  the  case  of  companies  which  issue  only 
non-participating  policies,  it  is  possible  that  the  companies  may  ultimately  be 
unable  to  meet  their  obligations  in  consequence  of  a  policy  on  the  part  of  the 
State  which  is  both  as  unwise  as  it  is  unnecessary. 

The  practice  of  taxing  premium  receipts  was  ably  referred  to  in  a  recent 
article  in  the  New  York  Evening  Post,  as  follows : 

"It  is  a  fundamental  principle  of  social  science  that  the  insurance  contract 
itself  ought  to  be  free  from  taxation.  Taxation  ought  to  be  on  property,  on 
production.  Insurance  contracts  produce  nothing.  If  any  tax  is  imposed  on 
insurance  companies  or  insured  persons  as  such,  it  should  be  imposed  on  their 
property  and  not  on  their  contract.  The  taxation  of  premium  receipts  is  utterly 
unscientific.  It  has  no  basis  of  credit  in  the  ultimate  distribution  of  the  tax. 
The  practical  effect  of  it  is  seen  by  a  calculation  of  what  a  policy  of  life  insurance, 
running  thirty  or  forty  years,  will  amount  to  at  the  end  of  the  term  if  the 
premiums  actually  paid  are  accumulated  at  compound  interest,  and  what  it  will 
amount  to  in  case  the  premiums  before  accumulation  are  diminished  by,  say  a 
3  per  cent.  tax.  Any  one  making  such  a  calculation  would  be  startled  by  the 
result.  A  tax  of  3  per  cent,  on  a  premium,  when  it  comes  to  a  final  settlement  in 
the  payment  of  policies,  amounts  to  an  enormous  burden  on  the  widows  and 
orphans  of  deceased  policy-holders,  far  beyond  the  tax  levied  on  any  other  species 
of  property  in  the  community." 

The  third  item  of  most  importance  is  the  tax  on  surplus,  which  forms  about 
13  per  cent,  of  the  total  taxes  paid  at  the  present  time.  This  tax  is  subject  to 
the  same  criticism  as  the  tax  on  premiums  in  that  it  is  both  unscientific  and 
unjust,  being  in  fact  in  the  direction  of  an  impairment  of  the  contract  obligations 
of  the  companies  which  have  agreed  to  pay  a  sum  certain  under  conditions 
which  did  not  presuppose  the  subsequent  imposition  of  heavy,  taxes.  As  you 
know,  a  company  depends  for  the  fulfilment  of  its  obligations,  first,  upon  a  normal 


15° 


THE   NATIONAL   CIVIC   FEDERATION. 


mortality,  second,  upon  the  realization  of  4  per  cent,  interest  on  its  investments. 
The  gradual  decline  in  interest  rates  has  made  it  necessary  for  most  of  the 
American  companies  to  henceforth  calculate  their  premiums  on  a  3  per  cent,  basis, 
and  there  has  been  in  consequence  an  increase  in  rates  during  recent  years.  I 
doubt  if  this  change  in  rates  would  have  been  necessary  if  the  matter  of  State 
taxation  had  remained  the  comparatively  unimportant  item  it  was  even  as  recent 
as  ten  years  ago.  This  point  was  recognized  as  early  as  in  1855,  when  in  an 
article  entitled  "Should  Life  Insurance  Companies  be  Taxed?"  the  Insurance 
Monitor  (p.  18)  said: 

"The  principle  of  insurance  on  lives  supposes  the  average  duration  of  life 
to  be  an  ascertained  fact,  and  that  a  given  premium  annually  invested  and  com- 
pounded at  a  given  rate  of  interest  will  produce  the  amount  called  for  by  the 
policy." 

"Whatever,  therefore,  disturbs  the  rate  of  accumulation  must  affect  the  result, 
and  a  company  whose  engagements  require  $100,000  to  be  annually  invested  at 
6  per  cent.,  will  at  the  end  of  thirty-one  years  (the  average  duration  of  policies) 
show  a  deficiency  of  $1,000,000,  in  case  its  accumulations  be  taxed  i  per  cent. 
Taxation  is  therefore  fatal  to  the  business  of  life  insurance  in  this  State." 

The  fourth  item  in  direct  taxation  is  now  happily  a  matter  of  history  only, 
that  is,  the  Internal  Revenue  Tax  on  new  insurance  contracts,  imposed  under 
the  War  Revenue  Act  of  1898.  Under  this  law  ordinary  insurance  contracts  were 
charged  a  stamp  tax  of  80  cents  per  $1,000  of  insurance,  while  industrial  contracts 
were  charged  40  per  cent,  of  the  first  weekly  premium.  This  tax  formed  21 
per  cent,  of  the  total  taxes  paid  by  our  company  during  the  year  1899,  and  in 
the  aggregate  amounted  to  almost  $100,000. 

A  more  unscientific  and  inequitable  as  well  as  unnecessary  tax  was  never 
devised  than  this  additional  burden  upon  an  interest  already  taxed  beyond  the 
point  of  sufferance.  It  was  imposed  upon  the  companies  under  the  enormous 
stress  of  war  conditions,  but  even  under  conditions  of  peace  the  Senate  sub- 
mitted to  its  repeal  only  in  conference  committee.  Those  who  are  interested  in 
the  subject  and  who  may  wish  to  trace  the  error  which  underlies  nearly  all  the 
insurance  taxation  in  this  country,  namely,  complete  ignorance  of  the  nature 
of  the  business  and  the  effect  of  taxes  upon  vested  rights  and  obligations,  should 
read  the  debates  of  Congress  on  the  Reduction  of  the  War  Revenue  Tax, 
February  6,  1901,  Cong.  Rcc.,  Vol.  xxxiv.,  No.  47,  p.  2194  et  seq. 

We  now  come  to  taxes  upon  the  companies  which  are  in  the  nature  of 
expenses  for  State  supervision  and  license  fees.  I  have  called  these  expenses 
taxes,  since  as  a  matter  of  fact  they  are  a  tax  upon  the  interests  of  life  insurance 
companies,  but  opinions  may  differ  as  to  whether  these  items  should  properly 
be  considered  taxes  in  the  true  sense  of  the  word.  For  State  supervision  and 
license  fees  the  Prudential  Company  paid  about  8  per  cent,  of  all  its  taxes  during 
the  year  1899,  or  in  round  figures,  $34,000.  The  direct  burden  of  this  tax  is  less 
than  the  indirect  burden,  since  in  consequence  of  this  system  of  State  super- 
vision the  general  expense  account  of  the  companies  has  been  materially  increased 
on  account  of  increased  clerical  expense  for  the  compilation  of  data  not  required 
for  office  purposes  and  of  practically  no  value  or  interest  to  the  general  public. 
Few  State  Commissioners  remain  long  enough  in  office  to  gain  personal  experi- 
ence to  be  of  value  to  the  insuring  public,  while  rarely  have  the  Commissioners 
the  advantage  of  trained  actuarial  advice.  Hence  the  cost  of  State  supervision 
and  the  implied  office  expense  is  in  itself  an  item  of  considerable  magnitude 
imposed  upon  the  companies  in  addition  to  the  taxes  already  referred  to. 


NATIONAL   CONFERENCE   ON   TAXATION. 


51 


Let  me  illustrate  this  point  in  a  little  more  detail.  In  the  State  of  New 
Jersey  life  insurance  companies  pay  first  a  tax  of  0.35  per  cent,  on  their  total 
premium  income  and  in  addition  a  tax  of  i  per  cent,  on  surplus.  Now  in  States 
which  collect  a  local  tax  on  premiums  collected  within  the  State  an  additional 
tax  of  from  i  to  3  per  cent,  may  be  collected,  as,  for  instance,  in  the  case  of 
Kentucky,  where  the  local  State  tax  is  2  per  cent,  on  premiums  collected  within 
the  State.  Thus  the  same  premium  income,  already  taxed  once  in  New  Jersey, 
is  made  subject  to  a  second  tax  in  the  State  of  Kentucky,  but  in  addition  there 
is  in  force  in  that  particular  State  a  law  under  which  the  city  of  Louisville 
collects  a  further  tax  from  life  insurance  companies  equal  to  two  and  one-half 
per  cent,  of  the  premiums  on  business  collected  in  the  city,  imposing  thus  a 
third  tax  upon  the  same  item  of  premium  income.  But  this  is  not  all,  there  has 
been  paid  in  addition  fees  for  State  supervision,  valuation,  filing  of  certificates, 
etc.,  and  license  fees  for  agents,  all  of  which,  of  course,  must  come  out  of  the 
premium  income  derived  from  local  business  and  all  of  which  will  be  charged 
against  the  business  transacted  in  the  State  of  Kentucky  as  an  expense.  Even 
this  is  not  all.  After  all  the  various  charges  have  been  met  and  have  been 
deducted  from  the  premiums  received  there  would  be  an  additional  tax  on  the 
remainder,  if  invested  in  local  real  estate,  and  under  the  recently  repealed  War 
Revenue  Act  there  would  have  been  an  Internal  Revenue  tax  of  $0.80  per  $1,000 
of  new  insurance.  Thus  we  have  it  that  in  this  State  on  a  premium  of  say.  $32.68 
at  age  forty  for  a  whole  life  policy  of  $1,000  the  company  would  have  to  pay, 
first,  0.80  as  the  Internal  Revenue  tax;  second,  o.ii  as  a  local  State  tax  in  New 
Jersey;  third.  0.65  as  a  local  State  tax  in  Kentucky;  fourth,  0.82  as  local 
municipal  tax  in  Louisville.  Ky.,  a  total  of  2.38,  or  equal  to  y.^  per  cent,  of  the 
premium  paid. 

THE  BURDEN  OF  LIFE  INSURANCE  TAXATION. 

I  have  already  stated  that  at  the  present  time  the  life  insurance  companies 
of  this  country  pay  annually  in  excess  of  six  and  a  half  million  dollars  for  taxes, 
licenses  and  fees,  a  vast  sum  which  under  normal  conditions  would  go  toward  a 
material  reduction  in  the  cost  of  insurance  or  reduction  in  premium  rates,  but 
which,  to  the  contrary,  have  been 'increased  in  consequence  of  an  unwise  and 
imwarrantcd  policy  on  the  part  of  States  ever  ready  to  impose  additional 
taxes  upon  an  interest  already  overtaxed.  On  the  basis  of  the  annual  premium 
income  of  all  the  companies  in  1899,  the  taxes  paid  were  equal  to  2.22  per  cent. 
If  a  comparison  is  made  with  the  year  1890  it  appears  that  there  has  been  a 
material  increase,  actual  as  well  as  relative  in  the  amount  and  proportion  of 
taxes  paid  by  the  companies.  In  1890  the  companies  paid  $1,754,000  in  taxes, 
equal  to  1.42  per  cent,  of  the  premium  income,  against  $6,500,000  in  1899,  equal  to 
2.22  per  cent,  of  the  premium  income.  In  other  words,  the  companies  in  1899 
paid  $2,338,000  in  excess  of  what  they  would  have  paid  had  the  tax  rate  of  1890 
prevailed  during  the  year  1899. 

A  still  more  pertinent  illustration  of  the  burden  of  life  .insurance  taxa- 
tion is  found  in  a  comparison  of  the  sums  paid  out  in  taxes,  with  the  sums  paid 
out  in  dividends  to  the  policy-holders.  The  term  "dividends"  in  life  insurance 
is  misleading,  but  common  usage  has  so  adapted  the  term  to  the  business  that 
it  is  now  difficult  to  invent  a  new  one.  As  a  rule,  where  the  term  "dividend"  is 
used  in  life  insurance  transactions,  the  reference  pertains  to  a  sum  of  money  which 
has  originally  been  paid  as  a  premium  but  which  subsequent  experience  proved 


152  THE   NATIONAL   CIVIC   FEDERATION. 

not  to  be  required.  Such  dividends  accrue  in  consequence  of  a  favorable  mor- 
tality experience,  of  a  lower  expense  rate  than  was  originally  assumed  necessary, 
and  occasionally  in  consequence  of  a  higher  rate  of  interest  earned  than  the 
expected  rate.  Such  dividends  then  are  not  profits  in  the  ordinary  sense  of  the 
word,  and  this  fact  was  early  recognized  by  Mr.  John  T.  Lewis,  Internal  Revenue 
Commissioner,  in  1863,  who  in  his  report  for  that  year  to  the  Secretary  of  the 
Treasury  made  a  strong  plea  for  the  repeal  of  the  law  taxing  the  dividends  of 
life  insurance  companies.  How  far  the  taxes  paid  by  life  insurance  companies 
affect  the  dividend-paying  ability  of  the  companies  is  made  clear  by  the  fact 
that  to  every  $100  paid  in  dividends  in  1899  there  were  $30.70  paid  in  taxes.  In 
other  words,  had  there  been  no  taxes  the  decrease  in  the  cost  of  life  insurance 
would  have  been  increased  by  more  than  30  per  cent.,  and  policy-holders  receiving 
$100  in  dividends  usually  applied  to  a  reduction  of  the  premium  or  for  the  pur- 
chase of  additional  insurance,  would  have  received  $130  had  there  been  no  tax 
upon  the  interests  of  life  insurance  companies. 

Briefly  summarized,  the  facts  pertaining  to  the  taxation  of  life  insurance 
companies  may  be  stated  as  follows : 

Out  of  every  $100  received  in  premiums  in  1899,  $2.22  was  paid  out  in 
taxes. 

To  every  $100  paid  to  policy-holders  in  1899,  $4.10  was  paid  in  taxation  or 
license  fees. 

To  every  $100  paid  in  death  claims  in  1899,  $6.70  was  paid  in  taxation  or 
license  fees. 

To  every  $100  paid  in  dividends  to  policy-holders,  largely  for  the  purpose 
of  reducing  the  cost  of  insurance,  $30.70  was  paid  in  taxation  or  license  fees. 

The  percentage  of  taxation  to  premium  income  has  increased  from  $1.42  in 
1890  to  $2.22  in  1899. 

The  ratio  of  taxation  to  dividends  to  policy-holders  has  increased  from  15.5. 
in  1890  to  30.7  in  1899. 

It  is  clearly  indicated  by  these  facts  that  the  burden  of  taxation  weighs 
indeed  most  heavily  upon  life  insurance  companies  in  the  specific  direction  of 
efforts  tending  by  economical  management  and  careful  selection  to  reduce  the 
cost  of  insurance  by  dividends  to  policy-holders.  Practically  every  dollar  paid 
in  taxation  or  license  fees  would  naturally  be  returned  to  policy-holders  as 
dividends,  mostly  used  for  the  purpose  of  reducing  the  premiums,  and  in  the 
experience  of  the  Prudential  this  would  have  more  than  doubled  the  amounts 
returned  to  policy-holders  in  this  manner. 

The  increase  which  has  taken  place  during  the  last  decade  in  the  ratio  of 
taxes  to  premium  income  is  still  more  clearly  brought  out  if  we  compare,  or 
rather  contrast,  the  increase  made  by  the  companies  in  premium  income  with 
the  increase  in  the  total  amount  paid  in  taxation  or  license  fees.  During  the 
ten  years  1890-99  the  premium  income  of  American  insurance  companies 
increased  85  per  cent.,  while  the  amounts  paid  in  taxation  or  license  fees 
increased  at  the  rate  of  188  per  cent.  In  other  words,  to  every  i  per  cent,  of  gain 
in  premium  income  or  growth  of  the  insurance  business,  there  has  been  an 
increase  of  2.2  per  cent,  in  taxation,  or  burdens  tending  to  materially  hinder  the 
greatest  possible  development  of  life  insurance  in  this  country. 

But  perhaps  the  most  serious  aspect  of  the  tax  question  is  indicated  in  the 
direction  of  tax  payments  to  the  interest  earnings  of  the  companies.  With  com- 
panies established  for  many  years  this  item  is  not  of  quite  so  much  importance 
as  it  is  to  companies  recently  organized,  or  which  are  comparatively  new  in  the 


NATIONAL   CONFERENCE   ON   TAXATION.  ,53 

business  of  writing  ordinary  insurance.  While  the  total  income  of  all  the 
American  life  insurance  companies  from  interest  and  rents  was  $73,500,000,  the 
taxes  paid  during  1899  were  $6,500,000,  representing  8.8  per  cent.  But  for  the 
Prudential  this  percentage  of  taxes  to  interest  income  was  much  higher  and  out 
oi  $1,557,000  received  in  interest  and  rents  $449,000,  or  29  per  cent.,  was  paid  out 
in  taxes  or  license  fees.  It  has  already  become  necessary  for  many  companies 
to  calculate  their  premiums  on  a  3  per  cent,  basis,  and  an  increase  in  premium 
rates  has  been  made  necessary  because  it  is  at  present,  and  will  probably  be  for 
many  years,  impossible  to  realize  the  high  rates  of  interest  obtainable  in  the 
past. 

THE  INCIDENCE  OF  LIFE  INSURANCE  TAXATION. 

The  incidence  in  general  taxation  has  probably  been  called  "the  vexed  ques- 
tion in  finance,"  and  in  the  words  of  Mr.  Mayo  Smith:  "Who  really  pays  the  tax?" 
The  person  on  whom  it  is  levied,  or  some  other  person  upon  whom  the  original 
sufferer  can  roll  off  the  burden?  The  answer  to  this  question,  with  particular 
reference  to  life  insurance,  is  that  the  incidence  of  life  insurance  taxation 
unquestionably  falls  upon  the  policy-holder,  even  though  the  company,  as  the 
representative  or  trustee  of  the  policy-holders,  pays  the  tax  in  the  first  instance. 
More  than  once  in  these  remarks  I  have  called  attention  to  the  fact  that  the 
progress  of  the  business  has  been  hindered  and  that  the  cost  of  life  insurance 
has  been  materially  increased  because  of  a  system  of  taxation  which  is  both 
faulty  in  theory  and  vicious  in  practice.  I  cannot  do  better,  however,  than 
incorporate  in  these  remarks  a  few  words  from  an  able  article  on  the  subject, 
which  appeared  in  the  Insurance  Critic  under  date  of  December,  1900: 

"A  tax  on  the  company  is  really  a  tax  on  the  policy-holders,  who  form  the 
company,  and  is  paid  only  by  them.  This  is  obvious,  if  it  is  considered  that  a 
company  has  no  other  fund  than  the  proceeds  of  the  premiums  paid  in  by 
its  policy-holders,  and  as  the  tax  must  be  paid  out  of  this  sole  fund  the  conse- 
quence is  that  the  cost  of  the  insurance  to  the  policy-holders  is  correspondingly 
increased.  This  may  be  demonstrated  as  follows:  The  premium  paid  by  the 
policy-holder  is  based  on  two  things — the  assumption  of  a  rate  of  probable 
mortality,  and  the  assumption  of  a  probable  rate  of  interest  on  that  part  of  the 
premium  which  is  the  reserve,  or  laid  aside,  for  the  payment  of  future  losses. 
To  this  something  is  added  as  a  provision  for  expenses  in  conducting  the 
business.  These  things  cover  the  normal  cost  of  the  insurance  to  the  policy- 
holder. If  the  actual  experience  as  to  mortality,  rate  of  interest  or  expense  is 
more  favorable  than  the  assumption,  whatever  is  left  is  surplus  and  is  returned 
to  the  policy-holder  as  an  over-payment,  unless  insured  on  the  non-participating 
plan.  Any  tax  paid  by  the  company  comes  out  of  that  surplus,  if  there  is  any. 
It  makes  the  return  to  the  policy-holder  just  so  much  less,  and,  consequently, 
makes  the  cost  of  his  insurance  just  so  much  more." 

In  a  similar  manner  the  A^^c;  York  Evening  Post  of  December  7,  1900, 
referred  to  the  fact  that  the  War  Tax  on  life  insurance  was  paid  by  the  policy- 
holders of  the  company. 

"Although  this  tax  was  nominally  paid  by  the  insurance  companies,  it  was 
in  fact  paid  by  the  policy-holders.  This  is  an  enormous  tax  on  the  frugal  and 
provident  men  who  wish  to  invest  their  savings  in  insurance  policies  for  the 
benefit  of  their  families,  when  death  shall  deprive  them  of  husband  and  father. 
It  operates  as  a  penally  on  the  prudence  and  thrift  which  alone  wreck  this  form 


154  THE   NATIONAL   CIVIC   FEDERATION. 

of  trust  investment,  and  which  instead  of  being  taxed  with  this  oppressive  burden 
should  be  as  far  as  possible  fostered  and  encouraged." 

The  same  point  was  brought  out  in  the  Congressional  debates  on  the 
repeal  of  the  War  Revenue  Act  of  1898,  when  the  Chairman  of  the  Committee  in 
charge  of  the  bill  said :  "Then  we  go  a  step  further  and  take  the  stamp  tax  off 
insurance  policies.  This  latter  tax  is  paid  almost  entirely  by  the  man  who 
receives  the  insurance.  The  man  zuJio  provides  for  the  future  of  his  fainily^ 
in  the  event  of  his  death  by  securing  a  life  insurance  or  in  providing  an  indemnity 
for  the  family  in  case  the  home  should  burn  down,  was  forced  to  pay  this  tax." 
Hence  the  repeal  of  a  law  which  in  the  first  instance  should  never  have  been 
placed  in  the  statute  book,  in  plain  recognition  of  the  plea  for  simple  justice 
that  those  who  voluntarily  undergo  privation  and  self-denial  for  the  purpose 
of  obtaining  economic  freedom  or  otherwise  dependent  survivors  should  not  be 
taxed  a  second  or  a  third  time  for  the  ulterior  purposes  of  the  State,  A  tax  on 
life  insurance,  as  thus  paid  by  the  policy-holder,  is  not  a  tax  on  their  property, 
but  on  their  losses,  and  no  more  justifiable  than  a  tax  on  a  house  after  it  has 
burned  to  the  ground.  To  my  way  of  thinking  the  hope  for  reform  in  life 
insurance  taxation  lies  in  the  direction  of  a  true  appreciation  and  clear  com- 
prehension of  the  incidents  of  the  tax  and  the  general  recognition  that  this 
incidence  cannot  and  is  not  shifted  from  the  policy-holder  upon  the  shoulders 
of  anyone  else  more  able  to  bear  the  burden. 

Hence  my  urgent  plea  that  this  subject  of  life  insurance  taxation  receive 
your  most  serious  consideration  to  the  end  that  the  present  tendency  to  increase 
the  already  heavy  tax  burden  of  the  companies  be  checked  and  the  gradual 
decrease  in  the  present  tax  rate  be  brought  about.  This  plea  is  based  on  the 
fact  that  the  annual  taxes  now  exceeding  six  and  a  half  million  dollars  fall 
with  undue  severity  upon  a  class  of  people  than  whom  none  are  more  deserving 
of  the  most  careful  consideration  on  the  part  of  the  State,  a  class  of  people 
who  in  the  large  majority  of  individual  cases  have  undergone  an  almost  incon- 
ceivable amount  of  self-denial  for  the  sole  purpose  that  those  near  and  dear 
who  are  to  after  them  may  live  lives  free  from  the  taint  of  State  aid  or  private 
charity.  To  tax  this  class  of  people,  the  policy-holders  of  life  insurance  com- 
panies, is,  in  the  words  of  Charles  Sumner,  "A  tax  upon  a  tax,"  and  in  his 
emphatic  language,  ''consequently  barbarism."  "Increased  taxation,"  he  said, 
"comes  out  of  the  thousands  of  policy-holders  and  not  from  the  companies' 
officers,  as  is  often  ignorantly  assumed." 

As  I  have  stated  on  the  outset,  it  has  been  my  object  in  addressing  to  you 
these  remarks  to  call  your  attention  to  a  neglected,  yet  most  important,  phase  of 
the  general  problem  of  taxation  of  this  country.  I  have  refrained  from  making 
specific  recommendations,  being  more  anxious  to  have  the  subject  fully  considered 
by  competent  and  disinterested  experts  in  the  same  manner  as  expert  attention 
has  been  given  to  the  inheritance  and  other  special  tax  features  of  modern  fiscal 
systems.  The  field  is  a  most  inviting,  and  I  need  hardly  assure  you,  a  most 
promising  one ;  but  it  is  necessary  that  those  who  may  take  up  this  question 
should  at  the  same  time  take  into  account  the  general  subject  of  life  insurance 
in  its  relation  to  public  welfare.  To  consider  the  one  subject  without  considering 
the  other  would  produce  results  of  little  value.  Complex  as  the  question  of  life 
insurance  taxation  is  and  equally  complex  as  is  the  general  subject  of  life 
insurance  finance  the  task  is  by  no  means  as  difficult  and  hopeless  as  appears  at 
first  impression,  and  every  contribution  toward  a  more  intelligent  comprehension 


NATIONAL  CONFERENCE  ON  TAXATION. 


^55 


of  the  problem  and  its  ultimate  solution  will  be  welcomed  by  those  who  have  the 
best  interests  of  the  policy-holders  at  their  heart. 

The  Chairman:  This  very  valuable  paper  will  be  published  in  full  in  the 
proceedings,  and  we  will  all  have  an  opportunity  of  reading  it  carefully.  The 
only  remaining  paper  is  one  by  Senator  Rodenback,  of  New  York,  on  the  codifi- 
cation of  tax  laws. 

Mr.  Rodenback  here  read  the  paper  referred  to,  which  was  received  with 
applause,  as  follows : 

THE 
COMPILATION    AND    CLASSIFICATION 

OF  THE 

Tax  Laws  of  the  Various  States  as  the  Necessary  Basis  for  a  Practical 

Uniform  Tax  Law. 
By  A.  J.   Rodenback. 

Taxes  are  contributions  for  the  support  of  government.  No  perfect  solution 
for  the  perplexing  problems  of  taxation  has  been  presented  to  this  Conference 
The  discussions  show  that  there  is  by  no  means  a  uniformity  of  sentiment  upon 
this  most  important  subject.  While  we  are  all  pretty  much  agreed  that  no 
property  should  escape  taxation,  sorne  of  us  differ  very  radically  as  to  how 
equality  of  taxation  should  be  accomplished.  There  are  those  present  who  would 
tax  mortgages  directly  and  those  who  would  tax  them  indirectly. 

Some  of  you  claim  that  a  mortgage  is  a  mere  chose  in  action  and  not  taxable 
property,  while  others  maintain  that  it  is  as  much  property  as  a  piece  of  real 
estate  and  should  be  taxed  accordingly.  Those  who  would  tax  mortgages  indi- 
rectly on  the  ground  that  a  direct  tax  can  be  shifted  and  that  the  borrower  in 
reality  pays  the  tax  are  met  by  the  reply  that  it  would  be  just  as  reasonable  to 
exempt  real  estate  from  taxation  upon  that  ground  wherever  the  owner  shifts 
the  tax. 

Some  argue  for  the  taxation  of  corporations  and  the  exemption  of  their 
stock  in  the  hands  of  the  holders,  while  others  insist  that  high  taxes  mean  high 
prices  and  that  by  charging  higher  prices  corporations  shift  the  tax  upon  their 
patrons.  Corporations  secure  a  higher  price  for  their  stock  by  reason  of  its 
exemption  from  taxation  and  indirectly  they  are  thus  compensated  for  the  tax 
which  they  pay  upon  the  stock.  Where  the  corporation  is  taxable  upon  its  capital 
stock,  the  taxable  value  is  not  always  ascertained  by  reference  to  the  value  of  the 
stock,  but  sometimes  by  reference  to  the  tangible  assets  of  the  corporation,  and 
so  it  frequently  happens  that  the  corporation  as  well  as  its  stock  escapes  taxa- 
tion. 

The  chief  argument  made  in  this  Conference  again.st  a  personal  property 
tax  has  been  the  difficulty  of  reaching  this  class  of  property  on  account  of  the 
ease  with  which  it  can  be  concealed,  but  in  reply  to  this  argument  it  has  been 
said  that  there  is  some  difficuhy  of  securing  as  between  tax  districts  an  equitable 
and  fair  assessment  of  real  estate.  It  is  claimed  that  personal  property  should 
be  exempt  from  taxation  because  assessors  either  do  not  make  an  effort  to  find 
this  class  of  property  or  are  unable  to  do  so,  and  that  it  not  fairly  assessed,  but 
this  argument  immediately  suggests  that  some  assessors  do  not  assess  real  prop- 
erty at  its  full  value  as  required  by  law,  and  that  thereby  a  portion  of  the  real 
estate  escapes  taxation. 

Some  have  argued  for  the  Australian  system  of  taxation,  which  taxes  the 
land  according  to  its  social  value,  as  it  is  called,  and  exempts  the  improvements 


156  THE   NATIONAL   CIVIC   FEDERATION. 

thereon.  Some  have  contended  for  local  option  in  taxation,  which  would  per- 
mit each  political  division  to  determine  for  itself  what  property  it  will  tax  for 
local  purposes.  , 

With  such  a  difference  of  opinion  among  us  as  to  how  and  what  property- 
should  be  taxed,  it  is  not  surprising  that  we  should  find  such  a  lack  of  uni- 
formity in  the  tax  laws  of  the  different  States.  This  want  of  uniformity  is 
very  striking.  It  is  shown  by  the  difference  in  the  definitions  of  real  and 
personal  property.  There  is  no  certain  rule  with  reference  to  exemptions. 
Some  classes  of  property  are  taxable  in  one  State  and  exempt  in  another.  In 
some  States  railroads  are  assessed  by  the  State  government  and  in  others  by 
the  Assessors  of  each  tax  district.  In  one  State  public  franchises  are  treated 
as  real  property  and  in  another  as  personalty.  The  taxation  of  State  and 
National  banks,  the  incorporation  and  annual  taxes  of  business  corporations 
vary  with  each  State. 

But  not  only  is  there  want  of  uniformity  among  the  tax  laws  of  the  differ- 
ent States,  but  there  is  no  consistency  in  the  provisions  of  State  tax  laws. 
Numerous  illustrations  might  be  cited  of  this  inconsistency.  In  New  York. 
State  there  are  three  rules  with  reference  to  the  taxation  of  public  property; 
one  applicable  to  the  city  of  New  York,  another  to  the  other  municipal  corpo- 
rations of  the  State,  and  a  third  to  the  wild  and  forest  lands  in  the  Adirondack; 
preserve. 

A  mortgage  is  taxable  for  its  full  value.  A  stock  certificate  of  a  corpora- 
tion taxable  by  law  upon  its  capital  stock  is  exempt.  The  mortgage  is  taxa-^ 
ble  upon  the  theory  that  it  is  property.  A  stock  certificate  is  also  property^ 
but  it  is  exempt  upon  the  theory  that  the  corporation  pays  the  tax.  There  is 
no  consistency  in  the  taxation  of  franchises.  Many  other  illustrations  might 
be  given. 

With  such  divers  views  as  to  what  constitutes  the  best  system  of  taxation 
and  the  practical  reforms  that  are  necessary,  and  with  such  lack  of  uniformity 
in  the  tax  laws  of  the  different  States  and  such  inconsistencies  in  the  tax 
laws  of  the  separate  States,  may  we  not  pause  for  further  study  of  the  subject 
before  recommending  any  sweeping  changes? 

1  suggest  that  the  tax  laws  of  the  various  States  should  be  investigated/ 
compiled,  classified  and  reduced  to  a  convenient  form  so  that  not  only  the 
legal  profession,  but  the  people  themselves,  may  learn  something  of  the  actual 
state  of  affairs.  '  Nowhere  is  there  to  be  found  a  compilation  or  summary  of 
the  tax  laws  of  the  various  States.  A  knowledge  of  the  tax  laws  should  be 
within  the  reach  of  everyone. 

This  compilation  and  classification  could  be  worked  out  by  a  national  com- 
mission to  be  appointed  by  this  Federation,  whose  duty  it  should  be  to  inves- 
tigate, compile  and  classify  the  laws,  decisions,  statistics  and  literature  relat- 
ing to  taxation.  If  this  Conference  resulted  in  nothing  more  than  the  appoint- 
ment of  such  a  commission  it  will  not  have  been  called  in  vain. 

Without  intending  to  outline  all  the  work  that  this  commission  might  do^ 
it  might  be  suggested  that  it  issue  semi-annually  a  publication  which  would 
bring  down  to  date  the  compilation  and  classification  of  the  tax  laws  from 
year  to  year,  and  which  would  contain  a  review  of  the  tax  laws  and  court 
decisions  upon  that  subject,  a  detailed  classified  summary  of  each  tax  law,  the 
text  of  the  most  important  and  distinct  tax  laws,  and  a  classified  summary  of 
books  and  periodical  literature  on  taxation,  including  annual  reports  of  State 


NATIONAL   CONFERENCE   ON   TAXATION. 


or  TH£ 

UNIVERSITY 


157 


Tax  Departments  and  reports  of  special  tax  commissions  and  also  compara- 
tive tax  statistics. 

As  a  further  work  the  commission  might  endeavor  to  secure  more  intel- 
ligibility and  uniformity  in  State  finance  statistics.  Under  present  conditions 
it  is  impossible  in  some  States  to  ascertain  the  exact  receipts  from  each  State 
tax,  and  in  only  a  few  States  is  it  possible  to  secure  statistics  as  to  local  taxa- 
tion. The  present  reports  by  State  officers  are  rendered  worthless  by  includ- 
ing in  them  receipts  from  other  sources  than  taxes.  This  commission  would 
accomplish  a  great  work  if  it  could  promote  uniformity  in  State  finance  stat- 
istics, and  bring  about  the  collection  and  uniform  presentation  of  statistics  of 
local  taxation. 

In  conclusion  I  would  say  that  when  the  laws,  decisions,  statistics  and  lit- 
erature of  the  various  States  upon  the  subject  of  taxation  have  been  compiled, 
classified  and  summarized  so  that  the  information  is  easily  available,  we  are 
then  prepared,  and  not  until  then,  to  secure  greater  uniformity,  consistency 
and  equality  in  our  tax  laws  through  awakened  public  sentiment,  through 
which  alone  all  important  reforms  in  taxation  must  come. 

The  Chairman  :  Gentlemen,  a  paper  has  been  sent  by  Mr.  Davies,  of 
New  York,  on  the  subject  of  certiorari  proceedings  for  the  redress  of  inequal- 
ities in  taxation,  peculiarly  adapted  to  New  York  procedure,  and  is,  of  course, 
somewhat  technical,  and  if  there  is  no  objection  it  will  be  received  and  printed 
and  considered  as  read. 

Following  is  Mr.  Davies'  paper: 

THE  REMEDY   BY   CERTIORARI   IN   THE   STATE   OF   NEW   YORK 
FOR  ILLEGAL,  ERRONEOUS  OR  UNEQUAL  ASSESSMENTS. 


By  Julien  T.  Davies. 

The  subject  of  this  paper  relates  only  to  assessments  of  real  and  personal 
property  for  local  taxation,  and  does  not  embrace  assessments  of  real  property 
for  local  improvements. 

The  remedy  furnished  by  the  writ  of  certiorari  was  adopted  in  this  State 
"by  the  Supreme  Court  early  in  its  history,  and  was  modeled  largely,  if  not 
entirely,  from  the  writ  as  administered  in  England  under  the  common  law. 
The  wri>,  both  in  England  and  in  this  State,  at  first  only  brought  into  question 
the  jurisdiction  of  the  lower  court  or  tribunal,  and  did  not  present  to  the  upper 
court  any  question  of  law  or  fact  upon  the  merits  of  the  case.  In  New  York 
State,  during  the  early  part  of  the  nineteenth  century,  the  common  law  writ 
was  the  only  means  of  reviewing  decisions  of  Tax  Assessors,  although  by 
various  acts  of  the  Legislature  the  writ  of  certiorari  was  extended  or  appHed 
to  many  proceedings  of  a  criminal  or  quasi-criminal  nature. 

Until  about  the  year  1840  the  decisions  appear  to  have  been  fairly  con- 
sistent in  applying  the  old  rule  that  a  certiorari  could  not  review  anything  but 
the  jurisdiction  of  the  lower  court  or  tribunal;  but  about  this  year  doubt 
began  to  be  entertained  in  the  minds  of  the  judges  whether  questions  of  law 
upon  the  merits  might  not  also  be  considered  by  the  courts.  Accordingly,  as 
time  went  on,  by  small  degrees  a  departure  was  made  from  the  old  English 
rule  by  some  of  the  judges,  although  others  in  turn  refused  to  enlarge  the 
functions  of  the  writ.     This  conflict  became  so  apparent  about  the  year   1865, 


158  THE    NATIONAL   CIVIC    FEDERATION. 

that  Morgan,  J.,  in  the  case  of  Baldwin  against  the  City  of  Buffalo,  35  New 
York,  380,  said  that  the  decisions  of  the  courts  in  relation  to  the  office  of  a 
common  law  certiorari  were  so  conflicting  that  it  was  quite  impossible  to  say 
that  any  settled  rule  had  ever  been  established  in  this  State  from  which  the 
courts  had  not  subsequently  departed.  The  opinion  in  that  case,  however, 
laid  it  down  as  established  by  the  decisions  of  the  Court  of  Appeals,  that  a 
writ  of  certiorari  would  bring  up  so  much  of  the  evidence  as  was  necessary 
to  present  the  questions  of  law  upon  which  the  relator  relied  to  avoid  the 
determination  of  the  inferior  tribunal.  Following  this  decision,  there  were  a 
number  of  cases  in  the  Court  of  Appeals,  which  substantially  settled  the  law 
to  be,  that  the  writ  would  take  up  questions  of  law  as  well  as  the  jurisdiction 
of  the  lower  tribunal,  but  that  questions  of  fact  could  not  be  considered. 

This  continued  to  be  the  state  of  affairs  throughout  the  State  (exclusive  of 
the  city  of  New  York)  until  Chapter  269  of  the  Laws  of  1880  was  passed, 
which  provided  for  a  certiorari  to  be  issued  by  the  Supreme  Court  upon  the 
petition  of  a  person  assessed,  which  might  allege  that  the  assessment  was 
illegal,  or  erroneous  by  reason  of  over-valuation,  or  was  unequal  by  reason  of 
the  fact  that  the  assessment  had  been  made  at  a  higher  proportionate  valuation 
than  other  real  or  pergonal  property  had  been  assessed  on  the  same  assessment 
roll  by  the  same  officers.  Section  i  of  this  act  provided  specifically  what  must 
be  shown  in  order  to  obtain  the  writ  and  under  what  conditions  it  could  be 
granted.  This  act  is  preserved  at  the  present  day  as  Section  250  of  the  Tax 
Law  of  1896  (Chapter  908  of  the  laws  of  that  year).  Under  this  act  assess- 
ments outside  of  the  city  of  New  York,  for  both  real  and  personal  property, 
may  be  reviewed  for  (i)  illegality,  including  jurisdictional  questions,  (2)  for 
over- valuation,  both  as  matter  of  law  and  as  matter  of  fact,  and  also  (3)  for 
inequality,  which  may  be  alleged  as  a  reason  for  reduction  or  cancellation  of 
the  assessment. 

There  is,  however,  one  feature  of  the  proceedings  by  certiorari  under  this 
act  of  1880,  which,  previous  to  the  passage  of  that  statute,  was  wholly  unknown. 
The  writ  of  certiorari,  in  its  original  function,  gave  essentially  merely  a  right 
of  review.  Previous  to  the  act  of  1880  the  only  function  of  the  writ  was  to 
give  a  right  of  appeal  from  the  inferior  tribunal.  The  act  of  1880,  however, 
provides  that  if,  upon  the  hearing,  it  shall  appear  to  the  court  that  testimony 
is  necessary  for  the  proper  disposition  of  the  matter,  the  court  may  take  evi- 
dence, or  may  appoint  a  referee  to  take  such  evidence  as  the  court  may  direct, 
and  such  testimony  shall  constitute  a  part  of  the  proceedings  upon  ^hich  the 
determination  of  the  court  shall  be  made.  The  effect  of  this  provision  in  the  statute 
has  been  held  in  the  case  of  People  ex  rel.  Manhattan  Railway  Company  v. 
Barker,  152  New  York,  417,  to  bring  about  the  result  that  in  cases  where  the 
testimony  is  taken,  the  writ  operates  as  a  venire  de  novo,  and,  really,  brings 
about  a  new  trial  of  the  same  questions  that  were  submitted  to  the  inferior  tri- 
bunal. Both  at  common  law  and  under  the  Code,  the  return  to  the  writ  is 
conclusive.  Not  so  in  the  case  of  the  certiorari  taken  out  under  the  act  of  1880. 
The  petition  is  regarded  in  the  nature  of  a  complaint,  and  the  writ  and  the 
return  to  the  writ  as  an  answer.  An  issue  thus  being  joined,  and  testimony 
taken  at  Special  Term,  the  issues  are  retried,  and  the  court  proceeds  to  deter- 
mination anew  of  the  precise  questions  that  had  previously  been  disposed  of 
by  the  assessing  officers.  There  is  still  some  debatable  ground  with  respect  to 
the  right  of  the  relator  to  insist  upon  the  introduction  of  testimony  at  Special 
Term  and  upon  the  hearing.    The  better  view,  however, .seems  to  be  that  where 


NATIONAL   CONFERENCE   ON    TAXATION. 


'59 


there  is  an  issue  of  fact  joined  by  the  petition  and  the  return,  and  where  the 
cause  is  not  to  be  disposed  of  merely  on  questions  of  law,  the  relator  has  a 
positive  right  to  insist  upon  putting  in  further  testimony  at  the  hearing,  and 
to  obtain  a  new  trial  of  the  issues  of  fact.  It  is  obvious  that  such  issues  of 
fact  would  most  generally  arise  in  cases  of  over-valuation  or  inequality  of  val- 
uation, or  non-residence. 

In  regard  to  the  city  of  New  York  the  legislation  has  not  been  so  simple. 
In  the 'year  1857,  by  Chapter  d-jj  of  the  acts  of  that  year,  Section  24,  it  was 
provided  that  in  the  city  of  New  York  a  certiorari  to  review  and  correct  upon 
the  merits  any  decision  or  action  of  the  Commissioners  of  Taxes  would  be 
allowed  by  the  Supreme  Court  or  by  any  judge  of  that  court,  directed  to  the 
Commissioners  upon  the  petition  of  the  party  aggrieved,  and  should  with  the 
return  be  heard  and  decision  rendered  by  the  court  in  preference  to  other 
matters.  Subsequently,  in  the  year  1859,  a  further  revision  of  the  tax  laws  as 
regards  the  city  of  New  York  was  made,  and  Section  24  of  the  act  of  1857  was 
re-enacted  as  Section  20  of  Chapter  302  of  the  act  of  1859.  Under  this  act  the 
evidence  was  considered  by  the  court  and  the  question  of  over-valuation  was 
deemed  to  be  taken  up  by  the  writ. 

In  the  year  1882  an  act,  Chapter  410,  was  passed  to  consolidate  all  existing 
legislation  in  regard  to  the  city  of  New  York,  and  the  act  of  1859  was  re-enacted 
in  such  act  as  Section  821.  In  1885  the  Legislature,  evident  fearing  that  the 
general  tax  act  of  1880  might  be  deemed  to  apply  to  the  city  of  New  York, 
passed  an  amendment  to  Section  821  of  the  Consolidation  Act,  by  which  the 
writ  of  certiorari  in  New  York  city  was  confined  to  questions  of  illegality  and 
over-valuation,  and  the  Supreme  Court  was  precluded  from  exercising  by  this 
writ  the  power  to  review  assessments  which  were  unequal,  or  made  at  an 
excessive  rate  of  valuation  as  compared  with  that  adopted  for  other  property 
on  the  same  assessment  roll. 

This  legislation  being  deemed  unjust  to  the  city  of  New  York  in  granting 
to  the  Assessors  great  powers  for  oppression  and  favoritism,  a  strong  effort 
was  made  upon  the  enactment  of  the  Charter  for  Greater  New  York  to  change 
the  rule,  and  accordingly  when  that  Charter  was  passed  (Laws  of  1897,  Chap- 
ter 378)  the  act  of  1880  was  closely  adhered  to,  and  by  Section  906  real  estate 
assessments  were  allowed  to  be  questioned  by  writ  of  certiorari  on  the  ground 
of  inequality,  although  the  right  to  attack  assessments  on  personal  property 
on  this  ground  was  withheld. 

The  only  statutory  difference  now  existing  between  the  right  of  a  tax- 
payer to  pursue  a  remedy  by  certiorari  outside  of  the  city  of  New  York  and 
within  its  limits  consists  in  the  rule  that  in  New  York  city  assessments  upon 
personal  property  may  not  be  questioned  by  reason  of  any  alleged  inequality 
between  the  particular  assessment  complained  of  and  other  assessments  for 
personal  property  upon  the  same  assessment  roll,  nor  can  assessments  of  per- 
sonal property  be  contrasted  with  those  of  real  estate. 

The  decisions  affecting  the  writ  of  certiorari  as  applicable  to  cases  of  ine- 
quality of  assessment  have  been  hardly  homogeneous,  and  it  is  somewhat  diffi- 
cult to  extract  from  the  mass  of  authorities  what  is  the  true  rule.  In  looking 
the  cases  over  a  great  distinction  is  at  once  apparent  between  the  remedy  for 
inequality  in  New  York  city  and  that  for  inequality  elsewhere.  Outside  of 
the  greater  city  the  proceeding  is  governed  by  the  act  of  1880,  and  it  has  been 
held  in  one  decision  (Matter  of  Nisbit,  3  Appellate  Division,  171)  that  the  petition 
for  the  writ  need  not  state  in  detail  wherein  the  inequality  existed,  but  that  it 


i6o  THE   NATIONAL   CIVIC   FEDERATION. 

might  allege  that  the  assessment  was  unequal  in  the  language  of  the  statute 
and  that  the  petition  was  in  the  nature  of  a  pleading,  and  conclusions  of  facts 
were  alone  required  to  be  stated  and  not  the  facts  themselves. 

Somewhat  later,  in  the  case  of  People  ex  rel.  New  York  Central  &  Hudson 
River  Railroad  Company  v.  Budlong,  25  Appellate  Division,  ^7^,  it  was  decided 
that  when  relief  was  sought  on  the  ground  that  the  valuation  placed  upon 
the  relator's  property  was  higher  than  that  placed  on  the  property  of  various 
other  persons  or  corporations  in  the  town,  instances  of  such  inequality'  should 
be  stated,  but  in  that  case  it  was  held  that  where  a  petition  alleged  that  the 
relator's  property  was  assessed  at  95  per  cent,  of  its  value  and  all  other  prop- 
erty at  50  per  cent,  of  its  value,  the  petition  was  sufficient  without  going  fur- 
ther into  details  and  specifying  any  instances  wherein  such  valuation  was 
adhered  to.  Later  cases  outside  of  New  York  city,  such  as  People  ex  rel.  Erie 
Railroad  Company  v.  Webster,  49  Appellate  Division,  556,  seem  to  have  fol- 
lowed this  rule,  and  problems  such  as  confront  the  Assessors  and  taxpayers  in 
the  city  of  Greater  New  York  are  avoided  elsewhere. 

In  New  York  city,  complications  arise  in  applying  the  remedy  of  certiorari 
to  cases  of  inequality  in  that  the  Greater  New  York  Charter,  which  first  per- 
mitted this  remedy,  required  instances  of  the  inequality  to  be  set  forth  in  the 
petition.  The  question  immediately  arose  whether  every  instance  of  such  ine- 
quality should  be  stated  or  whether  one  or  two  were  sufficient. 

It  was  contended  by  counsel  in  the  case  of  the  People  ex  rel.  People's 
Trust  Company  v.  Feitner,  51  Appellate  Division,  176,  that  the  Charter  was 
not  supreme,  but  it  was  held  that  as  the  Charter  was  passed  in  1897  and  the 
General  Tax  Law  in  1896,  the  Charter  as  the  later  expression  of  the  legislative 
will  should  control  in  every  case  where  the  provisions  of  the  two  acts  were  in 
conflict.  In  that  case  also  the  Charter  provision  that  inequality  might  only 
be  raised  in  New  York  city  with  respect  to  real  estate  assessments  was  applied, 
and  the  relator  who  sought  to  review  the  assessment  upon  mortgage  bonds  on 
the  ground  that  the  assessment  on  such  bonds  was  higher  than  upon  real 
estate  generally  was  held  not  entitled  to  the  writ. 

Approaching  now  more  closely  the  difficulties  which  it  was  intimated  existed 
in  New  York  city  in  applying  the  remedy  as  regards  inequality,  we  find  that 
in  the  case  of  People  ex  rel.  Bronx  Gas  Light  Company  v.  Feitner,  43  Appellate 
Division,  ,198,  the  Appellate  Division,  First  Department,  decided  that  where 
inequality  was  sufficiently  alleged  in  the  petition  for  the  writ  and  a  sufficient 
number  of  instances  of  it  were  alleged,  the  court  at  Special  Term  was  obliged, 
upon  application  of  the  relator,  to  either  order  a  reference  to  take  the  testi- 
mony with  regard  to  the  allegations  of  the  petition  or  hear  it  itself.  It  was 
decided  that  Section  253  of  the  Tax  Law,  which  provides  that  testimony  may 
be  taken  if  it  was  necessary,  for  the  proper  disposition  of  the  matter  was 
really  not  permissive,  but  mandatory,  and  that  the  court  had  no  discretion, 
but  upon  due  demand  by  the  relator,  showing  a  prima  facie  case,  was  compelled 
to  order  that  testimony  be  had.  In  that  case,  however,  the  petition  was  regular 
and  complied  with  the  Charter  provisions  in  stating  a  number  of  instances  of 
inequality.  It  does  not  appear  from  the  opinion  in  the  case,  however,  whether 
all  these  grounds  and  facts  contained  in  the  petition  for  the  writ  were  or  were 
not  presented  before  the   Commissioners. 

In  the  later  case  of  People  ex  rel.  Sutphen  v.  Feitner,  45  Appellate  Division, 
542,  the  relator  owned  property  on  Riverside  Drive  whose  assessment  had  been 
largely  increased  jn  the  year  1898,  and  he  accordingly  applied  to  the  Commis- 


NATIONAL   CONFERENCE   ON   TAXATION.  ,6i 

sioners  for  a  reduction  of  the  assessment,  alleging  that  the  assessment  was 
larger  than  the  assessed  value  of  adjacent  property  in  accordance  with  the 
market  value  of  the  same.  The  petition,  however,  stated  no  instance  of  ine- 
quality, but  simply  alleged  that  the  assessment  upon  the  relator's  property  had 
been  raised  from  what  it  had  been  previously,  and  contained  the  general  aver- 
ment that  it  was  greater  than  the  property  adjacent.  The  Commissioners 
re-assessed  the  property,  and  upon  the  further  report  of  the  Deputy  Assessor 
ordered  the  assessment  to  stand.  At  the  Special  Term,  when  the  relator 
moved  for  judgment  upon  the  papers  the  motion  was  denied.  The  relator 
then  moved  that  further  testimony  be  taken  to  support  his  allegations.  This 
the  court  denied  on  the  ground  that  further  testimony  was  not  necessary. 
The  Appellate  Division  said  that  although  the  rule  of  the  Bronx  case  that 
Section  253  of  the  Tax  Law  must  be  considered  as  mandatory  and  not  as  per- 
missive was  applicable  upon  the  facts  of  that  case,  yet  that  where  no  facts  were 
presented  before  the  Commissioners  and  the  petition  for  the  writ  contained  no 
allegations  of  instances  of  inequality  and  merely  stated  general  conclusions, 
the  courts  should  not  be  burdened  with  the  entire  duty  of  taking  evidence  upon 
the  issue  of  inequality,  and  that  it  was  never  intended  that  the  entire  burden 
of  reviewing  assessments  should  be  placed  upon  the  courts  and  not  upon  the 
Assessors.  It  was  accordingly  held  that  Section  253  of  the  Tax  Law  would 
not  be  construed  as  mandatory,  except  in  cases  where  facts  had  been  presented 
before  the  Commissioners  and  in  the  petition  for  the  writ. 

Considering  this  case  and  the  Bronx  case  together,  the  true  rule  seems  to 
be  that  in  cases  where  the  relator  desires  to  have  evidence  taken  by  the  court 
or  by  a  referee  to  be  appointed  by  the  court,  the  court  must  make  such  an 
order  where  the  relator  has  complied  with  the  Charter  requirements  and  stated 
instances  of  inequality,  but  that  where  he  has  neglected  to  state  such  instances 
he  will  not  be  assisted  by  the  courts  in  ordering  a  reference  or  taking  testi- 
mony. A  still  later"  case,  People  ex  rel.  The  Broadway  Realty  Company  v. 
Feitner,  decided  by  the  Appellate  Division,  First  Department,  in  April,  1901, 
fully  confirms  this  statement  of  the  rule.  This  doctrine  would  seem  to  put 
upon  a  relator  the  burden  of  extreme  care  from  the  very  start  of  the  proceed- 
ing; but  it  has  been  held  in  a  number  of  cases  that  at  any  time  the  relator 
may  apply  to  the  court  to  be  allowed  to  amend  his  petition,  and  the  courts 
have  frequently  in  the  decided  cases  stated  that  such  amendments  are  within 
the  discretion  of  the  court  and  might  be  allowed  at  any  time  before  final  deter- 
mination of  the  issues  presented  by  the  writ  and  return. 

In  the  recent  case  decided  by  Judge  Andrews,  People  ex  rel.  Marlborough 
Hotel  Company  v.  Feitner,  33  Miscellaneous,  293,  these  problems  are  presented, 
and  it  is  suggested  that  it  must  shortly  be  decided,  whether  the  Greater  New 
York  Charter  can  be  construed  to  have  totally  changed  the  rule  laid  down  by 
the  Court  of  Appeals  as  to  the  remedy  furnished  a  taxpayer  by  the  act  of  1880. 

Considering  the  writ  of  certiorari,  as  applied  to  questions  of  over-valuation 
of  property  by  assessing  officers,  it  is  only  necessary  to  show  in  the  petition  for 
the  writ  that  the  property  has  been  assessed  at  a  sum  in  excess  of  an  amount 
at  which,  under  ordinary  circumstances,  it  would  sell,  and  it  is  not  necessary 
that  these  very  words  be  used,  but  any  language  that  is  equivalent  may  be 
employed.  In  the  case  of  People  ex  rel.  Broadway  Improvement  Company  v. 
Barker,  14  Appellate  Division,  412,  the  relator  stated  that  the  property  was 
assessed  at  $210,000  more  than  its  market  value,  and  it  was  held  that  this  was 
sufficient  compliance  with  the  provisions  of  the  statute,  as  it  was  equivalent 


1 62  THE   NATIONAL   CIVIC   FEDERATION. 

to  stating  that  the  property  was  assessed  $210,000  more  than  the  sum  it  would 
bring  at  a  sale. 

Where  the  assessment  is  illegal,  either  from  want  of  jurisdiction  of  the 
Assessors  or  for  other  causes,  the  writ  of  certiorari  is  the  proper  remedy, 
although  in  cases  where  there  is  absolute  want  of  jurisdiction  in  the  Assessors, 
cither  because  of  non-residence  or  other  cause,  a  mandamus  can  also  be 
employed. 

The  decisions  in  the  Appellate  Division  have  threshed  out  these  principles 
quite  fully,  and  the  Court  of  Appeals,  in  a  recent  case,  has  refused  to  interfere 
with  the  discretion  of  the  Appellate  Division,  in  refusing  a  mandamus,  so  the 
law  upon  this  subject  can  practically  be  deemed  settled.  One  of  the  most 
important  of  these  authorities  is  the  case  of  People  ex  rel.  Powder  Company 
v.  Feitner,  41  Appellate  Division,  544,  where  the  corporation  had  its  office  in 
Tarrytown,  Westchester  County,  but  was  assessed  in  New  York  city  for  the 
year  1898.  On  July  18th  a  petition  for  a  writ  of  certiorari  was  presented  to  the 
court,  and  it  was  alleged  that  the  Assessors  had  no  jurisdiction  and  that  the 
assessment  was  illegal.  It  was  objected  that  certiorari  was  not  the  proper  rem- 
edy, but  the  court  held  that  under  Section  250  of  the  Tax  Law  the  writ  could 
be  employed  to  review  assessments  void  for  want  of  jurisdiction,  as  well  as  any 
other  illegal  assessments,  and  when  Assessors  acted  without  jurisdiction  their 
action  was  illegal  within  the  meaning  of  this  section  of  the  Tax  Law. 

In  People  ex  rel.  Cochran  v.  Feitner,  44  Appellate  Division,  239,  the  court 
had  a  state  of  facts  almost  the  converse  of  those  considered  in  the  Powder 
Company  case,  and  it  was  there  held  that  where  an  assessment  for  personalty 
was  made  against  the  executors,  administrators  and  trustees  of  the  estate  of 
H.  P.  DeGraff,  a  mandamus  could  not  be  employed  to  strike  the  assessment 
off  the  roll;  that  the  assessment  was  illegal  in  form,  but  that  as  long  as  the 
Assessors  had  jurisdiction  over  the  property,  the  writ  of  certiorari  was  the 
only  remedy,  and  that  mandamus  would  not  lie.  The  court,  in  considering 
the  question,  stated  that  either  the  Tax  Law  or  the  Code  certiorari  might  be 
employed  at  the  option  of  the  relator,  as  the  assessment  was  illegal  and  could 
have  been  remedied  by  the  writ  at  the  common  law.  A  somewhat  similar  ques- 
tion arose  in  the  case  of  the  People  ex  rel.  New  York  Central  &  Hudson  River 
Railroad  Company  v.  Feitner,  55  Appellate  Division,  544,  where  the  local  Tax 
Commissioners  assessed  the  relator  for  real  estate  and  included  the  tunnel 
property  from  Forty-second  Street  to  the  city  limits.  This  had  already  been 
assessed  under  the  provisions  of  the  Special  Franchise  Tax  Act  by  the  State 
Board,  and  under  that  act  local  Tax  Commissioners  were  forbidden  to  tax 
property  that  had  already  been  taxed  by  the  State  Board.  Mandamus  proceed- 
ings having  been  brought  to  cancel  this  assessment,  the  court  refused  to  remove 
the  assessment  from  the  rolls.  It  was  held  that  the  relator's  proper  remedy 
was  certiorari  and  that  mandamus  would  not  lie.  Upon  a  mandamus  the  court 
had  only  the  right  to  strike  off  the  entire  assessment  or  permit  it  to  stand,  and 
upon  the  writ  of  certiorari  correctionary  powers  were  granted  to  the  court  as 
well  as  the  power  to  strike  out  the  assessment.  The  court  said  that  the  Tax 
Commissioners  had  general  jurisdiction  over  the  property,  and  therefore  the 
remedies  were  not  concurrent,  and  that  mandamus  could  not  be  used.  This 
case  was  appealed  to  the  Court  of  Appeals  and  is  reported  in  166  New  York, 
154,  where  the  appeal  was  dismissed,  the  court  refusing  to  review  the  discretion 
of  the  Appellate  Division  in  dismissing  the  writ  of  mandamus.  These  cases 
support  the  conclusion  that  mandamus  is  a  proper  remedy  only  in  a  case  of 


NATIONAL   CONFERENCE   ON   TAXATION.  163 

total  want  of  jurisdiction  on  the  part  of  Assessors,  and  that  even  then  it  is  a 
concurrent  remedy  only,  and  that  certiorari  can  also  be  used.  Certiorari  is, 
as  the  court  declare,  a  proper  remedy  in  all  cases  to  review  tax  assessments. 

Let  us  now  consider  somewhat  in  detail  the  cases  which  have  regulated 
the  procedure  in  applying  for  and  obtaining  the  writ. 

A  number  of  cases  have  arisen  in  the  last  three  or  four  years  in  this  State 
as  to  who  can  apply  for  a  writ  of  certiorari,  and  who  is  entiled  to  verify  the 
petition,  and  it  has  been  held  that  in  a  proper  case  the  petition  for  the  writ 
may  be  verified  upon  information  and  belief  (People  ex  rel.  West  Shore  RaiU 
road  Company  v.  Johnson,  29  Appellate  Division,  75),  and  that  a  tax  agent  of 
a  large  railroad  was  quaHfied  to  sign  and  verify  the  petition  on  behalf  of  the 
company  (People  ex  rel.  Erie  Railroad  Company  v.  Webster,  49  Appellate 
Division,  556). 

In  making  application  for  writs  of  certiorari  it  has  been  decided  that  the 
writ  must  be  addressed  to  the  entire  Board  of  Assessors,  and  not  to  the  indi- 
vidual members  or  to  a  majority  of  them  by  name  (People  ex  rel,  Benedict  v. 
Roe,  25  Appellate  Division,  107).  A  relator  who  addressed^  his  writ  in  this 
fashion  was  held  to  have  committed  an  error  in  practice,  and  he  was  directed 
by  the  Appellate  Division  to  apply  to  the  Special  Term  for  leave  to  amend 
his  writ. 

Another  interesting  point  as  to  parties  to  the  petition  arose  in  the  case  of 
the  People  ex  rel.  Washington  Building  Company  v.  Feitner,  which  is  reported 
in  30  Miscellaneous,  247,  and  in  the  Court  of  Appeals,  163  New  York,  384.  In 
that  case  twenty-two  relators  joined  in  the  same  petition  for  a  writ,  alleging 
that  they  had  each  been  assessed  too  high  for  their  respective  pieces  of  real 
estate.  The  parcels  of  real  estate  owned  by  the  separate  relators  were  not 
contiguous,  although  in  the  same  general  neighborhood.  It  was  held  that 
Section  250  of  the  Tax  Law  did  not  contemplate  uniting  of  taxpayers  to 
question  assessments  unless  they  complained  of  the  assessments  for  the  same 
reason  and  upon  the  same  or  identical  facts,  and  the  court  considered  the  sit- 
uations of  the  various  pieces  of  property  and  concluded  that  obviously  differ- 
ent reasons  would  apply  to  the  assessment  of  each  of  the  different  parcels  and 
therefore  superseded  the  writ.  In  the  Court  of  Appeals  this  point  was  affirmed 
by  a  majority  of  the  court,  holding  substantially  that  only  persons  might  joint 
in  a  petition  for  a  writ  whose  interests  were  largely  identical,  but  a  strong  dis- 
senting opinion  was  written,  concurred  in  by  Landon,  O'Brien  and  Martin, 
Justices,  who  considered  that  the  statute  was  intended  to  allow  two  or  more 
persons  to  share  the  expense,  where  the  conditions  were  substantially  alike, 
and  that  the  remedy  should  be  construed  liberally  by  the  courts,  to  avoid  oppres- 
sion and  favoritism.  However  much  we  sympathize  with  the  dissenting  opin- 
ion in  this  case,  the  law  stands  that  practical  identity  of  interest  is  necessary 
for  two  or  more  property  owners  to  joint  in  the  same  petition  for  a  writ. 

With  regard  to  the  time  within  which  the  petition  for  the  writ  must  be 
filed,  more  decisions  have  been  rendered  than  on  almost  any  other  part  of  the 
practice  connected  with  this  remedj'. 

In  approaching  this  question,  we  find  a  difference  in  the  authorities  between 
New  York  State  in  general  and  New  York  city.  In  New  York  State  gener- 
ally the  Tax  Law  governs  and  the  writ  must  be  taken  out  within  fifteen  days 
after  the  filing  of  the  assessment  roll  with  the  Town  Clerk.  Cases  have  arisen 
as  to  when  the  writ  shall  be  deemed  filed  and  in  what  cases  a  relator  may  be 
excused  from  a  literal  compliance  with  the  statute.     In  People  ex  rel.  Cornell 


1 64  THE   NATIONAL   CIVIC   FEDERATION. 

Steamboat  Company  v.  Hornbeck,  30  Miscellaneous,  212,  the  relator  appeared 
before  the  Tax  Commissioners  on  the  third  Tuesday  in  August,  and  they  reduced 
the  assessment,  completed  the  tax  roll,  verified  and  filed  it  upon  that  day,  as 
required  by  Section  35  of  the  Tax  Law.  The  statute  states  that  a  copy  of  the 
roll  must  be  left  with  one  of  the  Assessors,  where  it  may  be  seen  and  examined 
by  any  person  until  the  third  Tuesday  in  August,  the  date  on  which  these  Asses- 
sors took  action.  The  relator  did  not  seek  by  petition  to  obtain  the  writ  within 
fifteen  days  from  the  third  Tuesday  in  August,  but  if  the  word  "until"  could 
be  construed  as  excluding  the  third  Tuesday  and  requiring  the  Assessors  to 
keep  the  writ  until  the  next  day — ^Wednesday — the  writ  would  have  been  in 
time.  It  was  held,  however,  that  the  word  "until"  meant  that  that  day  was 
to  be  excluded  from  the  time  the  Assessors  were  required  to  keep  the  books, 
and  that  their  action  in  completing  and  filing  the  rolls  on  that  day  was  per- 
fectly regular;  that  they  were  not  required  to  wait  until  the  next  day,  and 
that  the  relator's  writ,  not  being  in  time,  should  be  dismissed.  In  People  ex 
rel.  New  York  Central  &  Hudson  River  Railroad  Company  v.  Sheppard,  33 
Miscellaneous,  453,  a  motion  was  made  to  quash  a  writ  of  certiorari  on  the 
ground  that  it  had  not  been  taken  up  within  the  fifteen  days.  On  August  22d 
— the  last  day  to  file  the  assessment  roll — it  was  left  with  the  mail  at  the 
Town  Clerk's  oflice.  His  wife,  in  his  absence,  took  it  in,  and  as  it  was  wrapped 
up  in  a  paper  the  package  did  not  reach  the  Town  Clerk's  hands  until  the 
24th,  when  he  marked  it  filed  as  of  that  day.  The  relator's  writ  was  taken  out 
within  fifteen  days  from  the  24th,  and  it  was  held  that  it  was  in  time,  as  the 
roll  was  not  left  originally  with  the  Clerk  with  the  clear  and  unmistakable 
purpose  of  having  it  filed  upon  that  day,  so  that  the  real  filing  day  must  be 
considered  to  be  the  24th.  Although  the  courts  have  construed  this  time  pro- 
vision quite  strictly,  yet  in  Matter  of  Stow,  25  Miscellaneous,  580,  the  relator  was 
held  excused  for  not  applying  for  the  writ  within  the  fifteen  days,  by  reason 
of  the  fact  that  no  Special  Term  sat  at  that  time,  and  the  writ  applied  for  and 
obtained  at  the  earliest  Special  Term  after  the  rolls  were  completed  was  held 
to  have  been  properly  granted. 

In  New  York  city  these  cases  we  have  considered  do  not  apply,  as  for- 
merly under  the  Consolidation  Act  and  now  under  the  Charter,  the  assess- 
ments become  final  on  the  first  day  of  May  and  the  petition  for  the  writ  may 
be  presented  within  four  months  from  the  time  they  are  final,  as  authorized 
by  Section  2125,  of  the  Code,  or  may  be  taken  out  within  fifteen  days  from  the 
time  the  assessment  rolls,  called  "Books  of  the  Annual  Record,"  are  filed  with 
the  Municipal  Assembly  on  the  first  day  of  July.  In  People  ex  rel.  Bronx  Gas 
Light  Company  v.  Barker,  22  Appellate  Division,  161,  a  certiorari  was  obtained 
on  June  29th,  and  it  was  construed  to  have  been  properly  obtained,  on  the 
ground  that  the  assessment  became  final  on  May  ist  and  that  after  that  time 
the  Commissioners  could  only  hear  complaints  which  had  been  made  before 
May  1st,  and  that  a  writ  taken  out  within  four  months  from  May  ist  was 
perfectly  valid.  This  decision  was  followed  by  a  number  of  other  cases,  and 
in  People  ex  rel.  Brewing  Company  v.  Feitner,  41  Appellate  Divison,  496,  the 
rule  of  the  Bronx  case  was  applied,  and  a  petition  for  a  writ  presented  on 
November  ist  was  considered  too  late,  not  being  within  the  four  months  men- 
tioned in  Section  2125  of  the  Code. 

Another  requisite  to  obtain  a  writ  is  that,  except  in  a  case  of  want  of 
jurisdiction,  it  should  be  stated  that  proof  has  been  offered  before  the  Tax 
Commissioners.     The  cases  we  have  considered  upon  the  question  of  inequal- 


NATIONAL   CONFERENCE   ON   TAXATION.  165 

ity,  the  Bronx,  Gas  Light  Company  case  and  the  Sutphen  case,  largely  decide 
the  questions  that  have  been  raised  as  to  this  point.  In  People  ex  rel.  Speir  v. 
The  Tax  Commissioners,  28  Miscellaneous,  591,  the  writ  was  dismissed  upon 
the  ground  that  when  the  (Consolidation  Act  took  effect  a  person  who  desired 
to  obtain  a  reduction  of  assessments  by  certiorari  was  required  to  do  more 
than  make  a  statement  of  claim  before  the  Commissioners  that  all  personal 
property  was  exempt.  The  examination  upon  oath  of  the  applicant  was  made 
necessary  by  Section  820  of  the  Consolidation  Act,  and  by  Section  36  of  the 
Tax  Law,  a  statement  must  bd  filed  with  the  Assessors,  under  oath,  specifying 
the  respect  in  which  the  assessment  complained  of  is  incorrect.  It  seems  that 
in  that  case  the  relator  had  filed  a  statement  showing  that  his  personal  prop- 
erty (excluding  all  bank  shares)  which  was  subject  to  taxation,  did  not  exceed 
six  thousand  dollars.  The  relator  had  included  in  his  statement  both  property 
of  his  own  and  certain  property  as  executor,  belonging  to  an  estate  which  had 
been  willed  to  the  city  of  New  York  for  a  free  fountain.  It  was  held  that 
this  general  statement  by  the  relator  to  the  Commissioner  about  both  his  own 
property  and  the  property  represented  by  the  legacy  was  not  sufficient;  that 
a  specific  claim  for  the  exemption  for  the  property  devised  to  the  city  should 
have  been  made  before  the  Tax  Commissioners. 

Not  only  must  a  statement  be  made  before  the  Commissioners,  but  the 
relator  must  himself  appear  before  them  to  be  examined  under  oath  respecting 
his  statements,  or  appear  by  an  attorney  capable  of  presenting  proof  as  to 
relator's  claim  for  reduction  or  vacation  of  the  assessment.  In  People  ex  rel. 
Brown  v.  O'Rourke,  31  Appellate  Division,  583,  the  relator  was  assessed  as  an 
executor  of  an  estate,  and  put  in  an  affidavit  that  the  estate,  with  one  excep- 
tion, consisted  of  shares  of  corporations  that  were  already  taxed.  The  Asses- 
sors were  dissatisfied  with  the  affidavit  and  called  upon  relator  to  appear;  but 
he  had  gone  West,  and  his  agent  responded  to  their  call,  but  the  agent  knew 
nothing  of  the  facts.  It  was  held  that  the  affidavit  could  be  disregarded  by 
the  Assessors,  and  that  their  refusal  to  reduce  the  assessment  was  justified,  on 
the  ground  of  non-appearance  of  the  relator.  The  court,  in  holding  this  doc- 
trine, assumed  that  the  relator  would  have  been  entitled  to  a  reduction  of  his 
assessments  if  the  facts  stated  in  his  affidavit  had  been  true  and  had  been 
testified  to  by  him  in  person. 

A  curious  point  that  has  presented  itself  in  reviewing  assessments  com- 
plained of  in  the  city  of  New  York  is:  Where  should  the  writ  of  certiorari  be 
made  returnable  it  the  person  or  corporation  resides  outside  of  the  Borough 
of  Manhattan?  This  question  was  considered  in  the  case  of  The  Matter  of 
Tilyou,  57  Appellate  Division,  loi,  and  People  ex  rel.  Long  Island  Railroad 
Company  v.  Feitner,  53  Appellate  Division,  181,  and  the  rule  reducible  from 
those  decisions  is  that  in  case  of  a  corporation  outside  of  Manhattan  Borough 
the  writ  should  be  made  returnable  in  New  York  County,  as  final  determina- 
tions in  cases  of  corporations  are  made  by  the  Commissioners  in  New  York 
County  by  the  Charter;  but  that  in  cases  of  individuals  the  writ  should  be 
made  returnable  in  the  borough  in  which  the  taxpayer  resides.  In  cases  of 
individuals  the  figures  are  kept  in  the  Borough  Tax  Offices  and  the  assess- 
ments made  by  the  deputies  in  the  different  boroughs.  All  assessments  in 
cases  of  persons  and  corporations  in  New  York  city  are  considered  as  made 
tentatively  on  the  second  Monday  in  January,  and  up  to  that  time  the  main 
tax  office  has  nothing  to  do  with  the  assessments  of  individuals,  although  it  has 


i66  THE   NATIONAL   CIVIC   FEDERATION. 

with  the  assessments  of  corporations.  These  cases  clearly  set  forth  the  proper 
doctrine  upon  this  point. 

The  question  remains  to  be  considered  as  to  what  is  the  effect  of  an  assess- 
ment upon  non-residents,  how  the  question  may  be  raised,  and  if  the  Assessors 
persist  in  making  such  an  assessment,  are  they  entitled  to  collect  the  tax  by 
using  personal  remedies?  It  has  always  been  held  that  the  Tax  Assessors  have 
no  jurisdiction  to  impose  a  tax  for  personal  property  upon  non-residents,  and 
that  their  action  (if  they  persist  in  placing  such  a  tax  upon  the  rolls)  is  an 
illegal  act  which  can  be  remedied  by  a  common  law  writ  of  certiorari  or  by  a 
writ  of  mandamus,  or  the  non-resident  may  consider  the  tax  a  nullity,  and  if 
it  should  be  collected,  sue  to  recover  it  back.  All  these  propositions  are  so 
well  settled  that  they  have  not  been  raised  among  the  recent  cases.  In  the 
case  of  City  of  New  York  v.  McLean;  57  Appellate  Division,  601,  the  defendant 
was  a  citizen  of  the  Slate  of  New  Jersey,  who  had  never  lived  in  New  York, 
but  he  owned  share  of  stock  in  the  Standard  National  Bank,  and  was  assessed 
in  respect  to  those  shares  by  the  Tax  Commissioners  in  New  York  city.  For 
some  reason  the  bank  did  not  pay  the  assessment  against  those  shares,  and 
several  years  after  the  assessment  was  levied,  action  was  brought  by  the  City 
of  New  York  against  McLean  to  recover  the  amount  of  the  tax.  The  sole 
question  that  arose  was  as  to  whether  the  defendant  could  be  deemed  person- 
ally liable  on  account  of  his  being  a  non-resident.  It  was  held,  that  in  so  far 
as  a  resident  was  concerned,  the  Legislature  had  not  only  the  power  to  tax 
their  personal  property  without  regard  to  the  domicile,  but  also  had  the  power 
to  subject  such  residents  to  a  personal  liability  with  respect  to  that  tax  as 
well  as  to  any  other  tax.  It  was  held  that  a  foreign  corporation,  owning  stocks 
in  National  Banks  in  New  York  city,  was  required  to  appear  before  the 
Assessors,  precisely  as  a  resident,  if  it  wished  to  raise  the  question  that  the 
Assessors  had  erroneously  over-valued  stock,  but  the  court  stated  that  it  had 
never  been  decided  in  this  State  that  a  non-resident  individual  could  be  held 
personally  liable  for  the  tax.  The  court  considered  with  care  a  number  of 
decisions  of  the  L^nited  States  Supreme  Court  bearing  upon  the  question,  and 
adduced  the  rule  that  although  the  State  has  the  power  to  levy  a  tax  upon 
personal  property  of  a  non-resident,  situated  within  its  boundaries  and  subject 
to  its  jurisdiction  (and  for  that  purpose  could  separate  the  situs  of  the  owner 
from  the  actual  situs  of  the  property  within  the  State  and  subject  it  to  taxa- 
tion because  it  was  within  the  State),  yet  it  could  only  enforce  payment  of  the 
tax  by  virtue  of  its  jurisdiction  over  the  property  and  that  it  had  not  by  virtue 
of  that  jurisdicition  any  power  to  subject  the  owner  of  it  to  a  personal  liability 
for  the  tax.  From  this  decision  Van  Brunt  and  O'Brien,  JJ.,  dissented  on  the 
ground  that  it  was  against  public  policy  to  permit  such  taxes  to  be  evaded,  as 
they  would  never  be  collectable  from  non-resident  if  the  doctrine  of  the 
majority  of  the  court  was  to  prevail;  because  the  certificates  of  the  shares  were 
in  a  sense  negotiable  instruments  and  could  easily  be  transferred  to  other 
parties,  so  that  the  personal  liability  alone  could  be  resorted  to. 

A  curious  question  might  arise  in  the  event  that  a  citizen  was  assessed  in 
his  place  of  residence  for  a  piece  of  real  estate  situated  outside  of  the  assessing 
district.  It  might  be  argued  that  the  tax  could  not  be  enforced  against  the  citi- 
zen by  personal  remedies  in  the'  event  that  he  failed  to  get  the  assessment  set 
aside  by  certiorari.  Under  the  dictum  in  the  case  of  the  City  of  New  York 
against  McLean,  57  Appellate  Division,  601,  there  would  seeem  to  be  no  ques- 
tion of  the  right  of  the  State  to  collect  the  tax  from  the  individual  taxpayer, 


NATIONAL   CONFERENCE   ON    TAXATION.  167 

as  it  is  within  the  State's  power  to  provide  for  the  collection  by  personal  rem- 
edy of  all  taxes  assessed  against  its  citizens.  As  the  Assessors  of  the  district 
where  the  citizen  resided  would  have  no  jurisdiction  to  assess  him  for  the 
real  estate,  their  acts  would  be  void,  and  a  sale  of  the  real  estate  under  proceed- 
ings taken  to  collect  the  tax  would  probably  not  give  good  title.  However, 
this  could  hardly  arise  in  practice,  as  no  doubt  all  Assessors  would  know  the 
boundaries  of  their  assessing  districts,  and  it  would  hardly  be  assumed  that 
they  would  attempt  in  the  face  of  the  Tax  Law  to  assess  a  resident  of  their 
district  for  lands  which  they  knew  to  be  outside  of  their  jurisdiction. 

We  have  thus  followed  the  development  of  the  writ  of  certiorari  through 
the  decisions,  and  have  noticed  the  important  points  in  the  practice  that  has 
grown  up  within  recent  years  upon  this  comparatively  novel  form  of  remedy, 
for  we  must  remember  that  it  is  only  since  the  year  1880  that  the  writ  has 
assumed  such  wide  functions  and  been  used  to  correct  the  ordinary  errors 
made  by  Tax  Assessors.  In  many  instances  it  would  seem  as  if  the  Tax  Law, 
outside  of  New  York  city,  was  simpler  and  more  logical,  both  in  its  theory 
and  practice,  than  the  modifications  of  the  remedy  that  the  Charter  has  brought 
forth ;  but  it  can  be  safely  said  on  the  whole  that  most  of  the  disputed  terri- 
tory regarding  this  writ  has  either  been  covered  or  been  entered  into,  and  that 
there  are  now  few  pits  into  which  the  practitioner  need  fall,  if  he  has  consulted 
the  body  of  decisions  upon  this  remedy. 

Mr.  Seligman  :  Mr.  Chairman,  I  should  like  to  move  in  this  connection 
that  the  Conference  authorize  the  Committee  on  Publication  or  the  Executive 
Committee  which  is  to  be  appointed,  to  include  in  the  report  of  the  proceed- 
ings all  papers,  including  that  of  Mr.  Davies,  and  others  who  are  unable  to 
present  them  in  person,  so  that  the  finished  volume  will  include  all  papers. 

The  Chairman:  If  the  gentlemen  will  remember,  there  has  been  a  sten- 
ographic report  made  of  the  proceedings  so  that  your  remarks  made  at  the 
session  will  also  be  included  in  the  report  of  the  proceedings,  and  gentlemen 
who  have  read  papers  will  remember  to  hand  them  in  corrected  to  the  Secretary. 

The  next  business  will  be  the  consideration  of  the  report  of  the  Committee. 

Mr.  Wright:  Mr.  Chairman,  there  has  been  great  fairness  in  the  expres- 
sion of  opinion  here,  and  I  am  sure  that  everyone  is  satisfied  along  certain 
lines.  I  feel  certain  that  the  greatest  good  can  come  from  this  Conference  by  a 
unanimous  expression  along  the  lines  we  can  all  agree  upon.  I  therefore,  in 
that  view,  mov  that  the  report  of  the  Committee  be  accepted  and  adopted,  and 
its  recommendations,  including  the  resolutions,  be  adopted  except  as  to  the 
last  resolution  relating  to  the  separation  of  State  and  county  taxes  and  local 
option,  and  that  that  be  referred  back  to  the  Executive  Committee  for  further 
consideration. 

Mr.  Taylor:     I  second  the  motion. 

A  Member:     I  suggest  that  there  be  a  division  of  the  question. 

The  Chairman:  The  question  the  Chair  will  entertain  and  consider  is 
that  all  the  report  be  adopted  except  that  part  relating  to  local  option.  That 
we  will  take  up  later. 

Mr.  Niles,  of  Maryland :  Mr.  Chairman,  if  there  is  a  difference  of  opinion 
here  it  does  not  seem  to  me  quite  fair  to  the  other  members  of  the  Conference 
that  we  vote  upon  it  now.  As  we  look  around  on  the  deserted  seats  and  see 
only  Indiana  practically  in  evidence,  and  know  that  those  gentlemen  from 
Indiana  are  really  office-holders,  and  enforcers  of  their  own  law  to  a  large 
extent,  it  seems  hardly  right— and  I  do  not  say  it  in  any  spirit  except  of  good 


1 68  THE   NATIONAL   CIVIC   FEDERATION. 

humor — it  seems  hardly  right,  if  there  is  any  difference  of  opinion,  to  vote  on 
such  a  subject  now.  In  deference  to  the  absent  members  I  would  move  that 
the  matter  be  postponed. 

The  Chairman  :    This  is  the  last  session  of  the  Conference.  ' 

Mr.  Niles  :     I  thought  we  were  to  continue  to-morrow. 

The  Chairman:  No;  notice  was  given  this  morning  that  we  would  try 
and  finish  the  business  this  afternoon.  Gentlemen  had  full  notice  that  the 
business  was  to  be  completed. 

Mr.  Garfield:  I  think  the  motion  made  by  Mr.  Wright,  of  Michigan,  is 
the  one  that  should  prevail,  and  while  many  of  us  would  be  glad  to  have  the 
second  resolution  adopted,  we  are  not  here  in  full  numbers  at  present,  and  any 
expression  at  this  time  ought  to  be  practically  the  unanimous  expression  of  this 
Conference.  As  there  is  serious  opposition,  or,  at  least,  as  there  is  opposition 
to  the  second  clause  of  those  resolutions,  I  think  we  should  unanimously  agree 
on  the  first  and  also  upon  the  second  proposition,  namely,  that  the  second  reso- 
lution should  be  re-referred  to  the  Committee. 

The  Chairman  :  The  question  is  on  the  motion  of  Mr.  Wright  for  the 
adoption  of  the  report  with  that  exception.    That  will  come  up  later. 

Mr.  Howard:  Mr.  Chairman,  I  would  like  to  say  that  I  do  not  think  the 
resolution  is  in  opposition  to  anything  Indiana  contends  for  here. 

The  Chairman  :     The  local  option  matter  will  come  up  later. 

The  Chairman  put  the  question  on  Mr.  Wright's  motion  and  the  same 
was  unanimously  carried. 

The  Chairman  :  This  leaves  before  the  house  the  clause  of  the  report 
relating  to  the  separation  of  State  and  local  revenues. 

Mr.  Howard:  Mr.  Chairman,  I  call  for  the  reading  of  that  clause,  and  I 
think  it  will  satisfy  this  Conference  that  it  should  be  adopted  as  drawn. 

The  resolution  referred  to  was  read  by  the  Chairman  of  the  Committee. 

Mr.  Taylor:  Mr.  Chairman,  by  the  adoption  of  this  motion  that  resolu- 
tion has  been  referred  back  to  the  Committee. 

The  Chairman  :  No,  the  gentleman  is  mistaken.  That  part  of  the  report 
was  left  open  for  action  and  is  now  before  the  house. 

Mr.  Taylor:  I  would  like  to  have  an  explanation  of  what  this  resolution 
means. 

Mr.  Seligman  :  It  simply  means  that  the  State  should  be  empowered  to 
select  sources  of  revenue  for  its  purposes,  which  sources  might  be  different 
from  those  of  the  local  bodies.  For  instance,  it  means  that  if  a  State  decided 
to  draw  its  entire  revenues  from  corporation  taxes,  from  inheritance  taxes  and 
sources  of  that  kind,  it  might  be  desirable  to  relegate  the  general  property  tax 
to  the  localities.  It  also  means,  as  far  as  local  option  is  concerned,  practically 
the  proposition  that  was  hinted  at  in  the  paper  this  morning,  that  even  though 
we  retain — as,  of  course,  many  States  for  a  long  time  will  retain — the  system 
of  general  property  tax,  each  locality  should  be  empowered  to  relieve  from 
purposes  of  taxation  such  property  as  the  particular  local  bqdy  might  desire. 
In  other  words  it  would  mean  that  the  State  tax  would  still  be  assessed,  as  at 
present,  upon  all  the  local  divisions,  but  insead  of  being  assessed  upon  all  the 
property  in  the  local  divisions,  it  would  be  assessed  only  upon  the  property  in 
each  local  division  that  the  local  division  desires  to  have  taxed.  It  means  that 
each  separate  locality  would  be  given  a  wider  choice  of  option  than  it  now 
possesses. 


NATIONAL   CONFERENCE   ON   TAXATION.  169 

Mr.  Wright  :  The  purpose  of  my  motion  to  refer  back,  as  I  stated,  was, 
that  what  we  should  adopt  might  go  out  as  the  unanimous  conclusion  of  this 
Conference.  There  are  reasons  for  opposing  the  adoption  of  this  at  this  time, 
and  I  think  it  should  not  be  acted  upon  at  present. 

The  Chairma.v:  The  Chair  understand  Mr.  Wright  as  moving  that  the 
resolution  be  referred  to  the  Executive  Committee  to  be  hereafter  appointed, 
for   further   investigation. 

Mr.  Godard:  I  second  the  motion  that  it  be  referred  to  the  Committee 
for  further  investigation. 

Mr.  Seligman  :  I  should  like  to  say,  Mr.  Chairman,  that  the  Committee 
is  perfectly  prepared  to  accept  that  solution  of  the  problem,  because  after  all 
the  most  important  thing  is,  that  whatever  we  adopt  should  be  adopted  unani- 
mously. Neither  the  Committee  nor  any  member  of  the  Committee  desires  to 
force  anything  down  the  throats  of  any  State  or  organization.  We  want  to 
present  a  united  front. 

The  Chairman  put  the  question  upon  Mr.  Wright's  motion,  and  the  same 
was  duly  carried. 

Mr.  Wright:  Mr.  Chairman,  the  harmony  of  this  Convention  has  been  a 
notable  feature,  and  it  is  due,  not  only  to  the  spirit  of  fairness  of  those  on 
the  floor,  but  very  largely  to  the  able  and  impartial  manner  in  which  this 
Conference  has  been  conducted  b>  its  officers.  I  desire  to  move  that  this  Con- 
ference extends  its  thanks  to  its  officers  for  their  able  and  eminently  fair  con- 
duct, and  to  include  in  that  motion  a  vote  of  thanks  to  the  press  of  the  city 
for  their  very  full  report. 

Mr.  Gouard:  I  desire  most  heartily  to  second  that  motion  of  Mr,  Wright, 
iind  that  this  Conference  should  extend  its  thanks  to  the  officers,  and  particu- 
larly to  Mr.  Easley,  through  whose  untiring  efforts  this  Conference  has  been 
made  the  success  it  has. 

Mr.  Wright:  I  wish  to  add  to  that  motion  a  vote  of  thank  to  the  Historical 
Society  for  the  use  of  this  hall. 

Mr.  Wright  put  the  question  upon  his  own  motion  and  by  a  rising  vote 
the  same   was   unanimously   carried, 

Mr.  Taylor:  Mr.  Chairman,  before  adjourning  I  take  it  that  this  Conference 
in  some  form  will  have  another  meeting.  I  take  it  that  one  of  the  necessities  for 
the  accomplishment  of  the  work  of  this  Conference  is  education,  and  I  do  not 
know  of  any  better  method  or  means  to  extend  the  work  of  investigation  than  to 
have  this  Conference  meet  in  the  State  of  Indiana  at  its  next  meeting,  and  meet  in 
the  city  of  Indianapolis.  Without  any  conference  with  my  colleagues,  but  know- 
ing the  hospitable  spirit  of  the  people  of  the  State  of  Indiana,  and  knowing  the 
practical  workings  of  the  very  best  tax  law  as  I  believe,  that  has  ever  been  upon 
any  statute  book  in  Christendom,  I  know  it  will  be  to  the  advantage  of  reform 
in  taxation  for  this  Conference,  enlarged  in  membership,  to  come  to  Indianapolis 
next  year.  On  behalf  of  the  delegates  from  Indiana  we  invite  this  Conference 
to  come  to  the  city  of  Indianapolis  next  year  for  its  meeting. 

The  Chairman  :  Allow  me  to  say,  gentlemen,  before  putting  a  motion  to 
adjourn,  that  I  have  appreciated  very  highly  the  honor  of  presiding  over  such  a 
distinguished  and  representative  body  of  American  citizens,  assembled  to  assist 
in  solving  such  a  tremendous  problem  as  is  before  our  people.  I  want  to  con- 
gratulate you,  not  only  on  the  ability  that  has  characterized  the  discussion,  but  on 
the' candor  and  the  spirit  of  fairness  that  has  prevailed.     I  deem  myself  fortunate 


I70  THE   NATIONAL   CIVIC   FEDERATION. 

to  have  had  the  opportunity  of  making  these  pleasant  associations,  and  trusting 
that  we  may  meet  from  time  to  time  hereafter,  I  now  declare  the  Conference 
adjourned. 

The  Conference  then  adjourned,  subject  to  call  of  Exective  Committee, 


THE  EXCESSIVE  TAXATION  OF  INSURANCE  COMPANIES. 

Contributed  by  Greville  E.  Fryer,  Treasurer  of  the  Insurance  Company  of 

North  America,  Philadelphia,  Pa.,  and  Included  in  Proceedings 

by  Vote  of  Conference. 

Measures  are  frequently  passed  by  Legislative  assembhes  which  would  never 
have  become  law  had  their  tendency  been  realized  by  the  majority  affected  by 
them,  especially  measures  to  increase  rather  than  to  reduce  the  taxation  of 
incorporated  companies. 

One's  natural  inclination  is  to  look  upon  such  a  measure  as  not  in  the 
least  concerning  one's  self,  unless  directly  connected  with  such  a  company — in 
fact,  most  men  would  say,  "a  very  good  thing  to  do;  presumably  the  State 
requires  the  money;  railroads,  express,  telegraph,  and  insurance  companies  are 
wealthy ;  they  declare  good  dividends,  let  them  be  taxed ;  it  will  not  affect  me." 
Thus  the  question  is  lightly  passed  over,  the  measure  is  adopted  and  becomes  law, 
and  its  disastrous  results  are  unforeseen  until  gradually  the  consequences  become 
painfully  experienced. 

As  a  matter  of  fact  these  companies  are  already  heavily  taxed,  and  especially 
is  this  the  case  with  insurance  companies,  a  fact  of  vital  import  to  everyone.  We 
should  recollect  that  merchants'  credit  depends  to  a  very  great  extent  upon  insur- 
ance; consequently,  in  order  that  they  may  conduct  their  business  satisfactorily, 
they  are  compelled  to  be  insured.  If,  therefore,  insurance  companies  are  so 
heavily  taxed  already,  that  an  increase  of  taxation  would  necessitate  an  increase 
of  premium  rates  with  which  to  pay  that  tax,  our  legislators  should  hesitate  before 
passing  any  such  law.  For  that  premium  will  be  paid  by  the  merchants,  and  the 
merchants  will  recover  it  by  charging  customers  an  increased  price  for  commo- 
dities, and  thus  such  a  tax  will  fall  ultimately,  not  upon  the  companies,  but  upon 
the  consumer. 

The  alternative  course  for  insurance  companies  would  be  the  assuming  of 
greater  risks  than  experience  dictates  to  be  safe,  a  policy  equally  disastrous  in  its 
effects  upon  commerce  and  hence  upon  consumers.  For  insurance  companies  that 
are  not  responsible  are  of  but  little  use  to  a  merchant's  credit. 

It  is  no  exaggeration  to  say  that  insurance  companies  are  already  taxed 
heavily;  besides  which,  the  very  method  of  their  taxation  is  unjust.  They  are 
taxed  not  upon  profits  but  upon  receipts.  Thus,  out  of  their  receipts,  taxes, 
expenses  and  losses  have  to  be  paid ;  besides  which,  an  additional  tax  is  charged 
in  some  States,  formerly  upon  dividends,  but  now  upon  capital  stock  at  market 
value. 

Let  us  briefly  examine  the  effect  of  such  a  system.  There  is  no  need  to 
mention  the  various  companies.  We  will  simply  take  as  an  instance  one  of  the 
largest  companies  in  the  State  of  Pennsylvania, 

During  1900  this  company  paid  $128,400.68  in  taxes,  being  $109,482.38  on  its 
premium  receipts  and  $18,918.30  on  its  capital  stock,  the  latter  in  lieu  of  tax 
formerly  assessed  on  dividends.    The  percentage  of  the  whole  of  this  tax  would 


NATIONAL   CONFERENCE   ON    TAXATION.  17, 

be  equal  to  $35.67  upon  every  $100  of  dividend  declared.  Such  taxation  works 
strangely,  too,  for  had  this  dividend  been  one-half  what  it  was,  then  say, 
$10,406.25  less  tax  would  have  been  paid  on  the  capital  stock,  but  then  the  total 
tax  paid  would  be  equal  to  a  tax  on  its  dividend  of  $65.55  upon  every  $100  of 
dividend  declared,  and  so  on  ad  infinitum.  The  less  the  dividend  the  greater 
proportion  of  taxation. 

I  have  not  included,  in  stating  the  amount  of  taxes  paid  to  the  various  States, 
the  fees  collected  by  the  Insurance  Departments,  which,  had  I  done  so,  would  add 
at  least  10  per  cent,  to  the  amount.  Nor  have  I  included  the  tax  paid  to  the 
United  States  Government,  which  would  amount  to  at  least  20  per  cent.  more. 
This  United  States  tax  has  now  happily  been  done  away  with  by  a  recent  act,  and 
will  cease  on  the  first  of  July  of  the  current  year. 

The  European  governments  levy  no  such  tax,  but,  on  the  contrary,  foster 
these  interests  as  much  as  possible,  recognizing  how  important  are  the  insurance 
companies  to  the  mercantile  and  banking  interests. 

In  Great  Britain  the  tax  of  a  fraction  over  2  per  cent,  is  levied  upon  divi- 
dends declared,  there  called  an  "income  tax." 

If  additional  confirmation  were  needed,  I  would  state,  as  an  illustration,  that 
the  annual  statement  of  a  large  English  steamship  company  (and  all  their  incor- 
porated companies  are  taxed  alike),  with  a  capital  of  $40,000,000,  and  with  a 
profit  for  the  year  of  over  $1,000,000,  shows  $22,500  only  was  paid  in  taxes  to 
the  Government  of  Great  Britain,  whereas  the  insurance  company  to  which  I 
referred,  with  a  capital  stock  of  only  $3,000,000,  paid  in  the  same  year  that 
amount  upon  its  dividends  alone,  beside  $93,500  upon  its  premium  receipts.  The 
insurance  company  in  question,  in  seventeen  years,  paid  in  taxes  to  the  various 
States  the  enormous  sum  of  $1,694,000. 

In  Great  Britain  a  company  would  have  paid  during  the  same  period  only 
$169,000.  No  tax  is  paid  in  Europe  when  nothing  is  earned,  as  the  tax  is  levied 
upon  the  actual  profits  only,  and  where  $10  is  collected  here,  $1  is  collected  there. 
Does  not  the  fact  that  the  taxes  levied  upon  insurance  companies,  annually,  in  the 
United  States  amount  at  least  to  50  per  cent,  of  their  profits  (often  largely  in 
excess  of  this  percentage)  conclusively  prove  that  American  companies  are  being 
legislated  out  of  existence? 

This  tax  in  the  various  States  is  about  2  per  cent,  upon  gross  premiums  of 
say  $160,000,000.  This  does  not  include  Marine  premiums,  which  amount  to  many 
millions  more,  nor  to  those  of  the  Life  companies. 

Insurance  companies  have  in  the  past  been  much  too  ready  to  pay  taxes 
levied  upon  them  without  a  murmur,  but  that  day,  I  hope,  is  passing  away,  and 
that  the  subject  will  be  agitated  until  our  legislators  recognize  the  equity  of 
levying  taxes  upon  profits  only,  as  it  should  be. 

The  tax  upon  gross  premiums  is  wrong  in  principle,  because  levied  upon  a 
fund  the  greater  part  of  which  must  be  disbursed  by  the  companies  receiving  it — 
a  tax  upon  losses  and  expenses,  for  out  of  this  fund  these  liabilities  must 
be  met. 

The  average  percentage  of  taxation  to  net  premiums,  after  paying  losses 
and  expenses,  for  seventeen  years  from  1884  to  1900,  inclusive,  was  30.55  per  cent. 
(See  Appendix.) 

As  is  well  known,  the  larger  part  of  the  profit  nowadays  is  derived  from 
interest  upon  investments.  This  resource  is,  however,  diminishing,  for  where 
in  former  times  six,  seven,  and  even  eight  per  cent,  could  be  obtained  from  such 
investments,  a  company  is  fortunate  to-day  if  it  is  able  to  similarly  realize  4  per 


172  THE   NATIONAL   CIVIC   FEDERATION. 

cent.  No  argument  is  needed  to  show  that  the  whole  system  of  taxation  as  now 
levied  is  based  on  wrong  principles;  and,  besides,  many  escape  their  share  of 
taxation  who  should  justly  bear  it. 

Then  in  many  States  there  is  a  discriminating  tax  against  companies  from 
other  States;  then  these  States  affected  (now  twenty-nine  in  number)  pass 
retaliatory  laws,  thus  taking  out  of  those  States  that  discriminate  more  money 
than  the  States  would  receive,  all  at  the  expense  of  the  companies.  In  confirma- 
tion of  which  I  beg  to  submit  the  following  figures,  taken  from  the  books  of  the 
insurance  company  above  referred  to : 

Taxes  on  fire  and  marine  business,  paid  various  States 

in  twenty-five  years ?2,i 1 1,635 

What  the  taxes  would  have  been  had  there  been  no 

discriminating  law  in  Pennsylvania 732,069 

Difference  paid  to  other  States  in  consequence  of  their 

retaliatory  laws $1,379,566 

Taxes  on  fire  and  marine  business,  paid  to  States  with- 
out reciprocal  laws $    732,069 

Paid  State  of  Pennsylvania  taxes  on  capital  stock 520,186 

i  

Total   taxes   paid   to    State   of    Pennsylvania   and    to 

States  without  reciprocal  laws $1,252,255 

Total    taxes    paid    other    States,    in    consequence    of 

reciprocal  laws  1,379,566 


Is  it  not  amazing  that  our  Legislators,  who  should  foster  and  protect  an 
industry  so  beneficent  as  insurance,  without  which  many  a  merchant  would  be 
ruined,  and  many  a  family  left  destitute,  and  without  which  no  business  could 
be  carried  on,  legislate  in  a  manner  so  antagonistic  to  all  principles  of  right  and 
justice? 

But  all  this  aside,  the  overwhelming  fact  remains  that  taking  the  tax  condi- 
tions of  the  various  States  collectively,  the  net  average  burden  imposed  on  the 
companies  is  something  appalling.  This  was  impressively  demonstrated  by  a 
tabular  exhibit  prepared  a  few  years  ago  by  Mr.  Robert  Beath,  Secretary  of  the 
National  Board  of  Fire  Underwriters,  which  showed  that  the  experience  of  the 
companies  in  general,  both  native  and  foreign,  then  operating  in  the  United 
States,  realized  an  "actual  percentage  of  taxation  to  net  premiums  after  paying 
losses  and  expenses"  amounting  to  21.49  per  cent.,  while  in  a  number  of  the 
States  a  tax  was  demanded  even  where  an  actual  loss  was  shown  by  the  com- 
bined experience  of  the  companies !  Several  instances  were  given  by  Col.  Beath 
in  support  of  this  declaration,  one  of  which  was  Vermont,  where  a  tax  of 
$77,879  was  levied  on  an  aggregate  business  which  showed  an  absolute  loss  to 
the  companies  of  $76,715  ! 


NATIONAL   CONFERENCE   ON   TAXATION.  17^ 

Similarly,  it  was  shown  some  years  ago  by  the  Committee  on  Legislation  of 
the  National  Board,  that  during  1884,  1887,  1891,  and  1892  the  companies  operating 
in  Ohio  paid  to  that  State  in  taxes  the  large  total  of  $567,781  upon  a  total  business 
which  showed  an  actual  loss,  exclusive  of  taxes,  of  $1,111,207! 

Insurance  companies  need  protection,  not  increase  of  burdens. 

Many  companies  of  long  standing  and  good  repute  have  recently  collapsed, 
apd  more  will  be  compelled  to  draw  upon  their  reserves,  and  finally  experience 
similar  misfortune  unless  remedial  measures  are  granted,  and  United  States  com- 
panies will  be  legislated  out  of  existence  if  we  increase  their  taxation. 

I  suggest  that  the  matter  should  be  frequently  and  persistently  brought 
before  the  Legislatures  of  the  diflferent  States,  presenting  facts  and  figures;  let 
a  suitable  person  be  engaged,  one  if  possible  already  familiar  with  the  situation 
or  capable  of  acquiring  the  necessary  information,  to  devote  his  entire  time 
to  the  remedying  of  the  evil. 

The  Marine  and  Life  companies  should  unite  with  the  fire  companies  in  this 
work,  and  the  aid  of  the  daily  press  and  insurance  periodicals  should  be  judic- 
iously solicited. 

I  cannot  do  better  than  to  quote  a  very  great  authority  on  this  subject,  the 
late  Mr.  John  A.  Finch,  of  Indianapolis.    He  says : 

"From  my  knowledge  of  the  legislation  of  this  country  affecting  insurance 
companies  and  the  decisions  of  our  courts  upon  their  contracts,  'the  insurance 
company  and  its  contracts  have  a  place  in  the  statutes  and  in  the  courts  unknown 
to  any  other  company  and  to  any  other  contract ;  the  company  has  been  the  sport 
of  the  legislatures  and  its  contracts  the  football  of  the  courts.'  This  is  true, 
and  it  is  not  to  our  credit  as  a  people  that  such  a  saying  can  be  true. 

"The  statutes  of  all  the  States  affecting  insurance  companies  are  largely  for 
'revenue  only.*  No  other  business  is  taxed  as  is  the  insurance  business,  and 
of  no  other  tax  can  so  little  be  said  in  its  favor  and  so  much  in  condemnation. 
A  tax  on  an  insurance  premium  has  been  called  a  'tax  on  a  tax.*  Insurance 
on  property  is  as  essential  to  the  business  world  as  are  houses  in  which  business 
may  be  transacted.  The  stockholders  of  the  insurance  companies  are  not  in  the 
business  from  philanthropic  motives.  They  seek  a  profit  as  do  stockholders  in 
other  corporations.  In  so  far  as  they  can  forecast  probabilities  of  losses,  the 
officers  are  masters  of  the  situation.  They  must  collect  a  premium  sufficient  to 
pay  losses  and  agency  and  management  expenses,  and,  in  addition,  whatever 
taxes  are  imposed.  The  tax  is  a  part  of  the  cost — not  a  diminution  of  the 
profit.  As  a  tax  on  the  profit  of  the  company,  the  assessment  is  far  beyond  any 
rate  ever  considered  allowable  on  profits  of  any  other  business  or  on  any  kind  of 
property.  Taking  an  average  year,  the  percentage  of  taxes  to  net  premiums  ranges 
from  thirteen  and  a  fraction  in  New  York  to  thirty-four  and  a  fraction  in 
Tennessee. 

"The  taxation  of  insurance  companies  as  at  present  imposed  has  nothing  in 
its  favor  as  a  protection  to  the  policy-holder;  its  only  justification  is  the  resulting 
revenue.  No  legislature  would  ever  impose  such  a  rate  on  any  other  business,  and 
it  may  be  fairly  assumed  that  in  fixing  the  tax  on  premium  receipts  it  was  never 
supposed  that  the  rate  was  equal  to  an  average  of  twenty-five  per  cent.  of.  the 
profits. 

"The  tax  is  generally  on  the  basis  of  premium  received,  without  regard  to 
losses  and  expenses,  and  is  as  unjust  as  it  is  excessive. 


174  THE   NATIONAL   CIVIC   FEDERATION. 

"If  the  same  rule  should  be  applied  to  any  other  business,  the  outcry  would 
be  universal.  If  a  merchant  should  be  required  to  pay  a  tax  of  2  per  cent,  on 
his  sales,  or  a  railroad  company  a  tax  of  a  like  amount  on  its  gross  receipts, 
there  would  come  a  remonstrance  compared  to  which  the  objection  to  the  tax 
on  tea,  which  incited  our  fathers  to  revolution,  would  be  as  a  zephyr  to  a 
simoon." 

Therefore,  with  these  simple  and  undeniable  facts  before  us,  we  should 
all  earnestly  urge  upon  our  representatives  to  consider  well  whether  a  reduction 
rather  an  increase  of  taxation  on  corporations  would  not  be  of  more  benefit  to 
the  community  at  large  and  conductive  to  the  general  welfare  of  the  Common- 
wealth. 

Philadelphia,  Pa.,  June  15,  1901. 

THE  VALUATION  OF  FRANCHISES. 


By  Henry  C.  Adams, 

Professor  of   Political  Science,   University  of    Michigan,  and    Special  Expert  on 

Franchise  V^aluations  for  Michigan  Tax  Commission. 

In  approaching  the  question  of  the  valuation  of  franchises  for  the  purpose 
of  taxation  one  is  impressed  at  the  outset  with  the  fact  that  there  exists  no 
accepted  or  uniform  definition  of  the  word  franchise.  The  history  of  the  word 
is  of  slight  assistance  because  it  has  changed  its  interpretation  with  every  change 
of  industrial  organization.  Without  undertaking  a  classification  of  these  various 
definitions,  which  an  exhaustive  consideration  of  the  subject  would  render  neces- 
sary, I  venture  the  statement  that  the  essential  element  in  all  franchises  under 
modern  industrial  conditions  is  the  value  which  inheres  in  a  business  in  excess 
of  the  value  of  its  tangible  property  on  the  one  hand,  and  of  so  much  of  its 
success  as  is  traceable  to  the  peculiar  talent  with  which  the  business  is  directed,  on 
the  other.  This  means  that  the  commercial  value  of  an  industry  is  traceable  to 
one  of  three  sources.  First,  the  cost  of  the  physical  plant;  second,  the  skill 
of  the  present  management ;  and,  third,  the  organization  of  the  industry  and  its 
relation  to  consumers  and  competitors.  It  is  this  third  element  that  must  be 
considered  when  one  undertakes  the  valuation  of  a  business  franchise. 

Assuming,  for  the  purpose  of  discussion,  that  you  agree  with  the  above 
delineation, — How  may  franchise  value  be  determined  ?  The  laws  of  the  various 
States  are  no  guide  in  answering  this  question,  for  they  seem  to  have  been 
drawn  without  adequate  appreciation  of  either  the  nature  of  the  thing  to  be 
assessed,  or  of  the  administrative  necessity  of  a  clearly  expressed  statutory 
rule  for  the  guidance  of  the  Assessor.  It  will  meet  the  demands  of  the  present 
occasion  if  we  consider  the  relative  merits  of  two  familiar  methods. 

The  first  of  the  methods  assumes  that  the  business  to  be  valued  is  organized 
as  a  corporation  or  as  a  joint  stock  association,  and  accepts  the  market  value  of 
shares,  stocks  or  bonds  as  the  true  measure  of  the  value  of  the  entire  property. 
Deducting  from  this  amount  the  value  of  the  physical  plant,  and  making  allowance 
for  exceptional  talent  in  administration,  it  finds  in  the  remainder  the  value  of 
the  franchise.  The  second  of  the  two  methods  of  appraisal  assets  that  assured 
earnings  are  the  only  true  basis  of  valuation. 

There  are  three  reasons,  as  it  appears  to  me,  why  the  valuation  of  corporate 
property  according  to  the  market  value  of  its  stocks  and  bonds  fails  to  meet  the 
requirements  of  a  valid  assessment. 


NATIONAL   CONFERENCE   ON   TAXATION.  175 

First.  In  the  first  place,  it  must  be  recognized  that  the  market  value  of 
stocks  and  bonds  is  influenced  by  considerations  quite  independent  of  the  earning 
capacity  of  a  property,  and,  to  the  extent  that  this  is  true,  a  tax  on  the  basis 
of  such  valuation  would  fail  to  conform  to  the  generally  accepted  rule  of  equity 
in  assessment.  The  value  of  a  particular  series  of  stocks,  for  example,  is  fre- 
quently influenced  by  the  desire  of  the  promoter  of  a  new  organization  to  gain 
control  of  the  property  which  they  represent,  in  which  case  the  price  he  is  willing 
to  bid  is  influenced  more  by  his  estimate  of  the  ultimate  advantage  to  be  gained 
from  the  contemplated  organization  than  by  the  earning  capacity  of  the  particular 
property  purchased.  The  seller,  on  the  other  hand,  demands  whatever  he  thinks 
he  can  get.  His  reasoning  is  no  longer  that  of  an  investor  but  of  a  strategist. 
He  is  in  a  position  to  block  the  organization  and  values  his  property  accordingly. 
This  fact  is  so  familiar  as  to  require  no  illustration.  The  market  quotation 
of  stocks  and  bonds  also  is  frequently  influenced  by  speculation  even  more  than 
by  considerations  of  investment.  How,  for  example,  could  one  arrive  at  the 
industrial  worth  of  the  Burlington,  the  Northern  Pacific,  the  Great  Northern,  or 
the  Union  Pacific  by  considering  the  market  quotations  of  the  securities  of  these 
properties  during  the  last  three  months?  It  is  evident  that  the  stock  quotations 
of  securities  do  not,  and  from  the  nature  of  the  influence  to  which  they  are 
exposed,  can  not  be  accepted  as  a  test  of  the  commercial  worth  of  the  properties 
which  such  securities  represent.  Were  corporations  to  be  taxed  on  the  basis 
of  assessment  determined  by  the  market  value  of  stocks  and  bonds,  it  is  likely 
that  those  which  are  industrially  weak,  but  strategically  strong,  would  pay 
relatively  more  in  taxes  than  those  which  are  industrially  strong  but  strategically 
weak. 

The  tax  ought  not  in  equity  to  be  assessed  to  corporations  on  the  basis  of 
the  market  quotations.  It  is  the  investor's  valuation  and  not  the  valuation  of  the 
promoter  or  the  speculator  which  should  be  accepted  by  the  Assessor  as  a  guide 
in  the  valuation  of  corporate  franchises. 

Second.  The  second  reason  why  market  value  of  stocks  and  bonds  cannot  be 
accepted  as  a  safe  basis  of  appraisal  rests  upon  the  claim  that  the  franchise 
value  of  a  business  is  not  a  simple  or  homogeneous  fact.  Its  analysis  shows 
it  to  be  made  up  of  several  elements,  each  of  which,  in  equity,  may  be  imposed 
with  a  different  rate  of  taxation.  This  suggestion  opens  up  a  broad  field  of  specu- 
lation which  we  can  now  enter,  but  I  desire  to  make  clear  the  meaning  of  this 
theoretical  criticism,  and  shall  try  to  do  so  by  a  simple  illustration.  The  Presi- 
dent of  the  American  Steel  Company  in  his  testimony  recently  given  before  the 
Industrial  Commission,  explained  the  basis  of  the  company's  capitalization. 
The  capital  of  the  new  company,  it  will  be  remembered,  exceeds  the  aggregate 
capital  of  the  companies  organized  by  many  millions  of  dollars,  and  this  increase 
in  capitalization  was  defended  on  the  ground  that  the  new  company  controlled  not 
only  the  process  of  manufacture  but  the  source  of  material  to  be  manufactured ; 
that  this  control  covered  80  per  cent,  of  the  visible  supply,  and  that,  in  the 
case  of  ore,  this  visible  supply,  at  the  estimated  rate  of  consumption,  would  last 
for  sixty  years.  All  this,  he  claimed,  was  a  sound  asset  to  the  company  and 
should  be  represented  by  its  capital. 

Admitting  for  the  moment  the  accuracy  of  this  presentation,  and  there  is 
no  reason  to  believe  that  it  fails  to  represent  truly  the  situation,  it  is  evident 
that  the  value  of  so  much  of  the  capital  of  this  organization  as  represents  its  beds 
of  iron  and  of  coal  depends  upon  the  fact  that  the  organization  has  monopolized 
the  situation.     Ordinarily  an  iron  mine  which  cannot  be  used  for  sixty  years 


176  THE   NATIONAL   CIVIC   FEDERATION. 

would  have  little  present  value,  but  this  steel  company,  it  v^^ill  be  observed, 
regards  this  future  output  as  having  a  present  worth.  It  has  placed  upon  the 
market  a  security  which  cannot  be  supported  by  sale  of  product  for  sixty  years, 
and  the  only  means  by  which  it  can  tloat  such  a  security  is  to  charge  a  price  for 
the  current  output  adequate  to  pay  a  dividend  upon  a  property  which  represents 
a  process  of  manufacture  that  from  the  nature  of  the  case  cannot  be  performed 
for  two  generations. 

It  seems  to  me  evident  that  the  ability  of  this  organization  to  float  these 
excess  securities  is  due  to  its  monopoly  and  not  to  its  assets,  and  the  point  I  wish 
to  make  is  that  such  a  form  of  property  ought  to  pay  a  higher  rate  of  taxation 
than  property  which  represents  a  current  process  of  industry  under  conditions 
which  guarantee  a  fair  price  for  service  rendered.  If,  now,  the  franchise  of  such 
a  corporation  is  determined  by  the  market  value  of  stocks  and  bonds,  the 
Assessor  is  not  able  to  distinguish  between  these  two  classes  of  value,  and  the 
Legislature  is  not  able  to  assign  a  higher  rate  of  taxation  upon  the  present 
worth  of  capital  to  a  future  product  than  it  assigns  to  the  present  worth  of  the 
current  product.  I  cannot  escape  the  conclusion  that,  in  so  far  as  the  commercial 
success  of  the  so-called  industrials  depends  upon  their  ability  to  control  the  price 
to  the  consumer,  the  franchise  value  thus  created  should  be  made  the  basis  of 
special  taxation,  and  this  cannot  be  done  under  the  rule  of  valuing  a  franchise 
by  the  market  quotations  of  stocks  and  bonds.  To  express  this  in  another  way, 
it  seems  essential  for  the  realization  of  that  equity  which  all  admit  should  char- 
acterize the  administration  of  the  taxing  system,  that  the  physical  element  in  an 
industry,  by  which  I  mean  its  machinery  and  its  plant,  should  be  valued 
separately  from  the  non-physical  element,  that  the  non-physical  element  itself 
should  be  analyzed,  and  a  rate  of  taxation  imposed  upon  it  in  harmony  with  its 
commercial  basis  and  its  social  significance.  Should  this  suggestion  be  admitted 
as  sound,  there  is  no  escape  from  the  conclusion  that  the  appraisal  of  franchise 
valuation  on  the  basis  of  the  market  quotations  of  stocks  and  bonds  fails  to 
conform  to  the  most  recent  phase  of  industrial  organization. 

Third.  It  should  be  noted  in  the  third  place  that  the  rule  for  appraising  the 
franchise  value  of  the  corporation  under  consideration  presents  great  administra- 
tive difficulties.  The  best  securities  are  not  quoted,  they  are  held  as  investments 
and  are  not  bought  and  sold  with  sufficient  frequency,  or  in  adequate  quantities, 
to  establish  a  current  price.  In  the  place  of  argument  I  give  you  a  fact.  Out 
of  the  seventy-five  railroads  which  the  Board  of  State  Tax  Commissioners  of 
Michigan  was  called  upon  to  appraise  there  were  but  seven  respecting  which  the 
information  was  adequate  to  make  an  appraisal  on  the  basis  of  market  quotations. 
It  is  possible  that  other  States  have  been  more  fortunate  in  the  application  of 
this  rule,  but  when  one  acquaints  himself  with  the  great  variety  of  securities 
that  are  outstanding  in  the  case  of  a  corporation  that  has  existed  for  fifty  or 
seventy-five  years,  and  of  the  great  variety  of  uses  to  which  these  securities  are 
put,  the  difficulties  appear  to  be  almost  insurmountable. 

Another  consideration  against  the  appraisal  of  franchise  value  on  the  basis 
of  market  quotations  of  securities  presents  itself  when  we  consider  the  use  to 
which  such  an  appraisal  is  put.  My  illustration  pertains  to  railway  taxation. 
In  the  great  majority  of  cases  the  tax  contributed  by  railways  is  divided  between 
the  State  Government  and  the  minor  civil  divisions,  and  the  Assessor  is  obliged 
not  only  to  discover  the  aggregate  value  of  a  railway  for  the  purpose  of  taxa- 
tion, but  to  assign  this  value  between  the  several  grades  of  government  that 
participate  in  the  taxes  which  are  paid.     It  is  well  known  that  great  railway 


NATIONAL   CONFERENCE   ON   TAXATION.  177 

systems  have  been  built  up  by  assimilation  or  consolidation.  The  main  line 
is  perhaps  represented  by  well-known  stocks  and  bonds  outstanding  and  in  the 
hands  of  the  public,  but  the  securities  of  assimilated  lines  are  frequently  held 
in  the  treasury  of  the  parent  company  as  collateral  for  a  portion  of  the  securi- 
ties which  the  parent  company  has  issued.  It  is  not  necessary  to  enter  upon  an 
extended  description  of  the  complex  conditions  that  exist  in  the  matter  of 
railway  securities.  The  fact  is  one  with  which  all  are  familiar  and  the  conclusion 
to  which  this  points  seems  to  be  equally  apparent.  Admitting,  for  the  moment, 
that  the  franchise  value  of  a  system  could  be  obtained  from  the  market  quotations 
of  the  live  stocks  and  bonds,  the  conditions  under  which  these  are  issued  do  not 
permit  the  localization  of  this  value.  One  of  the  essential  requisites  therefore, 
of  a  rule  for  the  valuation  of  franchises  for  the  purpose  of  taxation  under  the 
system  of  taxation  in  many  of  our  States  fails  to  be  realized  by  the  appraisal  of 
stocks  and  bonds  at  their  market  value. 

It  is  easier  to  criticize  an  established  rule  than  to  frame  a  new  one.  I 
shall  venture,  however,  a  few  suggestions  with  this  end  in  view.  That  which 
gives  value  to  an  industrial  organization  or  to  a  business  is  its  present 
earning  capacity.  The  valuation  for  the  purpose  of  taxation  ought  to  proceed 
along  the  same  lines  as  the  valuation  of  the  investor.  This  is  a  fundamental 
consideration,  and  it  follows  that  the  income  account  and  not  the  balance  sheet 
is  the  account  to  which  the  Assessor  should  address  himself  for  the  facts 
necessary  for  a  conservative  appraisal  of  franchise  values.  The  obligations  which 
a  corporation  may  have  issued,  the  debts  which  it  may  have  incurred,  the  capital 
which  it  may  have  spent  in  the  past,  whether  wisely  or  foolishly  is  of  no 
importance,  are  of  less  significance  in  the  appraisal  of  present  value  than  the 
amount  of  income  which  a  corporation  enjoys  from  an  assured  business  and  the 
amount  of  expenditures  incident  to  its  operations. 

It  must  also  be  recognized  that  the  franchise  value  is  of  a  value  in  excess 
of  the  value  represented  by  the  plant.  Its  valuation  pertains  to  the  intangible 
and  not  to  the  tangible  elements  of  an  industry,  and  any  successful  rule  of 
appraisal  must  admit  of  the  separation  of  these  two  quite  distinct  elements  of 
value.  Not  only  is  this  required  by  the  analysis  of  an  industry,  but  it  becomes 
imperative  if  one  recognizes  that  the  commercial  and  social  significance  of  the 
tangible  elements  in  an  industry  differ  from  those  of  the  intangible  element  and  on 
this  account  may  be  differently  treated  in  the  levy  of  taxes.  Starting  with  these 
two  suggestions,  that  the  income  account  presents  the  data  and  that  the  franchise 
value  differs  from  ihe  value  of  physical  elements,  the  rule  for  arriving  at  the 
valuation  of  franchises  for  the  purpose  of  taxation  is  not  far  to  seek.  It  con- 
sists in  the  capitalization  of  what  remains  out  of  the  income  after  operating 
expenses  and  a  normal  return  upon  a  just  appraisal  of  the  physical  capital  have 
been  satisfied.  I  would  not  be  understood  as  saying  that  this  rule  is  simple  in 
its  application.  It  relies  for  its  success  upon  the  character  of  the  returns  which 
corporations  make  to  the  appraisers,  but  there  is  no  good  reason  why  corpora- 
tions cannot  be  required  to  make  returns  of  heir  business  in  such  a  manner  as 
will  permit  the  successful  application  of  the  rule. 

As  perhaps  some  of  you  are  aware,  the  rule  thus  curiously  suggested  was 
adopted  by  the  Board  of  State  Tax  Commissioners  of  Michigan  in  their  recent 
valuation  of  railways.  The  first  step  in  this  task  was  the  valuation  of  the  physical 
elements.  This  was  accomplished  on  the  theory  of  reproduction  and  deteriora- 
tion and  has  commended  itself  to  all  who  have  studied  the  steps  by  which  it  was 
accomplished.     The  physical  valuation  of  each  railroad  within  the  State  having 


178  THE   NATIONAL   CIVIC   FEDERATION. 

been  determmed,  the  second  step  in  this  process  consisted  in  a  study  of  the 
income  account  of  these  railways  for  the  ten  years  preceding  the  date  of  appraisal. 
This  seemed  necessary  in  order  to  obviate  the  market  fluctuations  in  valuation 
•which  the  fluctuation  of  earnings  year  after  year  would  occasion.  Both  the  gross 
and  the  net  income  accepted  as  the  basis  of  computation  stood  for  the  average 
income  of  a  series  of  years.  From  this  amount  there  was  first  deducted  5  per 
•cent,  of  the  physical  valuation,  this  being  accepted  as  a  fair  allowance  for  profit 
and  for  taxes.  The  surplus,  in  case  the  earnings  of  the  road  showed  a  surplus 
over  and  above  the  5  per  cent,  allowance  on  physical  valuation,  was  capitalized 
at  7  per  cent. ;  and  this  capitalization  was  accepted  as  representing  the  current 
value  of  the  intangible  elements  in  the  property. 

I  do  not  refer  to  the  difficulties  which  were  experienced  in  the  application 
of  this  rule.  They  were  due  to  the  condition  of  the  accounts  of  the  railways  and 
not  to  the  principle  involved  in  the  rule.  There  is  one  point,  however,  in  closing, 
to  which  I  should  like  to  call  especial  attention.  Any  scheme  of  valuation  for 
the  purpose  of  taxation  must  be,  to  a  greater  or  less  degree,  arbitrary  in  its  apph- 
cation.  One  of  the  chief  merits  of  the  method  of  valuation  here  suggested  lies 
in  the  fact  that  the  arbitrary  element  is  reduced  to  a  single  quantity.  All 
depends,  of  course,  upon  the  rate  of  interest  allowed  upon  the  physical  capital 
and  the  rate  allowed  for  the  capitalization  of  the  final  surplus.  It  is  no  slight 
advantage,  in  the  practical  process  of  appraisal,  that  the  only  point  to  be  deter- 
mined by  arbitrary  adjustment  should  be  the  choice  of  the  rate  per  cent.  I  would 
not,  of  course,  urge  that  there  are  no  theoretical  or  practical  objections  to  the  rule 
of  appraising  franchise  values  for  the  purpose  of  taxation  on  the  basis  of  the 
-data  contained  in  the  income  account,  but  the  time  placed  at  my  disposal  does  not 
permit  me  to  consider  these  difficulties;  and,  in  closing,  I  desire  merely  to 
express  my  appreciation  of  this  opportunity  of  submitting  to  a  body  of  men 
gathered  together  for  the  serious  discussion  of  local  taxation  a  rule  which  seems 
to  me  to  indicate  a  feasible  plan  for  solving  one  of  the  most  vexed  questions  in 
,i:he  taxation  of  corporate  properties. 


APPENDIX. 


79 


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DELEGATES   APPOINTED    TO    ATTEND    NATIONAL    CONFERENCE 
ON    TAXATION  AT    BUFFALO,    MAY   23-24,  1901. 


Appointed  by  Gov.  W.  E.  Stanley,  of  Kansas. 


Hon.  C.  F.  Biddle,  Coldwater. 
Hon.  F.   Dumont  Smith,  Kinsley. 
Hon.  E.  Grosser,  Enterprise. 
Tlon.  Frank  E.  Grimes,  State  Treas- 
urer, Topeka. 


Hon.  C.  F.  Hurrell,  Holton. 

Hon.  George  E.  Cole,  State  Auditor, 
Topeka. 

Hon.  A.  A.  Goddard,  Attorney  Gen- 
eral, Topeka. 


Hon.  John  Francis.  Colony, 


Appointed  by  Gov.  George  W.  Atkinson,  of  West  Virginia. 


Hon.  Wm.  P.  Hubbard,  Wheeling. 
Hon.  John  H.  Holt,  Huntington. 
Hon.  Henry  G.  Davis,  Elkins. 
Hon.  L.  J.  Williams,  Lewisburg. 
Hon.  Geo.  C.  Bowyer,  Winfield. 
Hon.  T.  A.  Brown,  Elizabeth. 
Hon.  S.  B.  Elkins,  Elkins. 
D.    C.    Westenhaver,    Esq.,    Martins- 
burg. 


Hon.  G.  W.  Atkinson,  Charleston. 
Hon.  F.  M.  Reynolds,  Keyser. 
Hon.  P.  C.  Eastham,  Pt.  Pleasant. 
Chas.  M.  Hart,  Esq.,  Clarksburg. 
J.  L.  Caldwell,  Esq.,  Huntington. 
B.   M.  Ambler,  Esq.,   Parkersburg. 
Hon.   John   K.  Thompson,   Raymond 

City. 
Hon.  W.  L.  Dunnington,  Weston. 


Appointed  by  Gov.  Wm. 

Hon.  Henry  K.  Boyer,  U.  S.  Mint, 
Philadelphia. 

Col.  John  A.  Glenn,  Aud.  General's 
Department,  Harrisburg. 

Hon.  W.  T.  Creasy,  House  of  Rep- 
resentatives, Harrisburg. 

Hon.  James  S.  Beacon,  Greensburg. 


A.   Stone,  of  Pennsylvania. 

Hon.  George  R.  Dixon,  House  of 
Representatives,  Harrisburg. 

Hon.  G.  von  Phul  Jones,  House  of 
Representatives,  Harrisburg. 

Hon.  George  J.  Hartman,  House  of 
Representatives,   Harrisburg. 

Frank  M.  Eastman,  Harrisburg. 


Appointed  by  Gov.  M.  B.  McSweeney,  of  South  Carohna. 


Major  Storen,  Charlestown. 
Hon.  J.  D.  Capplemann,  Charlestown. 
Col.  W.  A.  Clark,  Columbia. 
Prof.   R.    Means   Davis,   Columbia. 
Hon.  George  S.  Mower,  Newberry. 


Hon.  W.  L.  Mauldin,  Greenville. 
Hon.  D.  E.  Hydrick,  Spartanburg. 
Col.  LeRoy  Springs,  Lancaster. 
Hon.  W.  J.  Montgomery,  Marion. 
Mr.  T.  W.  Bouchier,  Bennettsville. 


Appointed  by  Gov.  William  W.   Stickney,  of  Vermont. 


Hon.  John  L.  Barstow,  Shelburne. 

Hon.  Judson  E.  Cushman,  Burling- 
ton. 

Prof.  Walter  E.  Howard,  Middle- 
bury. 

Hon.  Frederick  W.  Baldwin,  Barton. 

Judge  Chas.  H.  Darling,  Bennington. 


Mr.   F.   N.  Whitney,   Northfield. 

Hon.  Victor  I.  Spear,  Randolph. 

Mr.  Chas.  H.  Davenport,  Brattle- 
boro. 

Mr.  Guy  B.  Horton,  A.B.,  Middle- 
bury  College,  Middlebury. 

Mr.  Saml.  B.  Botesford,  Vergennes. 


180 


APPENDIX,  18 1 

Appointed  by  Gov.  J.  C.  W.  Beckham,  of  Kentucky. 

Hon.  Bennet  H.  Young,  Louisville.  Hon.   J.   Campbell    Cantrill,    George- 

Hon.  J.  Proctor  Knott,  Danville.  town. 

Hon.  D.  A.  Yeiser,  Paducah.  Hon.   N.  W.  Utley,  Eddyville. 

Hon.  Reuben  A.  Miller,  Owensboro.  Mr.  W.  J.  Harahan,  Louisville. 

Hon.  Charles  J.  Bronston,  Lexington.  Mr.  Arthur  Goebel,  Covington. 

Mr.  Walker  D.  Hines,  Louisville. 

Appointed  by  Gov.  J.  Hoge  Tyler,  of  Virginia. 

Hon.     Howard     Hathaway,     White-  Col.  A.  C.  Bowman,  Salem. 

stone.  Hon.  John  B.  Moon,  Charlottesville. 

Hon.  J.  C.  Parker,  Franklin.  Mr.  J.  Brad  Beverly,  The  Plains. 

Judge  Rogers  Gregory,  Richmond.  Mr.  W.  H.  Aston,  Meadow  View. 

Mr.  E.  C.  Tredway,  Emporia.  Dr.  J.  C.     Barker,  Buchanan,  Bote- 
Mr.  D.  W.  Spencer,  Spencer.  tourt  Co. 

Appointed  by  Gov.  Alex  M.  Dockery,  of  Missouri. 

Hon.  F.  N.  Judson,  St.  Louis.  Judge  W.  M.  Williams,  Boonville. 

Hon.  C.  P.  Walbridge,  St.  Louis.  Hon.  E.  P.  Mann,  Springfield. 

Hon.  Harry  Howard,  Macon.  Hon.  R.  B.  Olivar,  Cape  Girardeau. 

Hon.  E.  C.  Hall,  Plattsburg.  Hon.  W.  H.  Kennan.  Mexico. 

Hon.  R.  E.  Ball,  Kansas  City.  Hon.  E.  P.  Caruthers,  Kennett. 

Appointed  by  Gov.  John  F.  Hill,  of  Maine. 

Hon.  F.  E.  Boothby,  Portland.  Hon.  Milton  Morrill,  St.  Albans. 

Hon.  Sidney  T.  Fuller,  Kennebunk.  Dr.  George  M.  Twitchell,  Augusta. 

Hon.  Rutillus  Alden,  Winthrop.  Hon  Addison  E.  Herrick,  Bethel. 

Hon.  Henry  Lord,  Bangor.  Hon.  Wainwright  Gushing,  Fixcroft. 

Obadiah  Gardner,  Rockland.  Hon.  Wm.  N.  Nash,  Cherryfield. 

Appointed  by  Gov.  A.  H.  Longing,  of  Mississippi. 

Hon.  H.  M.  Street,  Meridian.  Hon.  E.  F.  Noel,  Lexington. 

Col.  D.  B.  Seal,  Bay  St.  Louis.  Hon.  W.  T.  Rush,  Greenwood. 

Hon.  W.  M.  Cox,  Baldwin.  Hon  L.  T.  Taylor,  Verona. 

Hon.  J.  A.  Clinton,  Natchez.  Hon.  E.  H.  Woods,  Rosedale. 

Hon.  R.  C.  Lee,  Madison.  Hon.  B.  C.  Adams,  Grenada. 

Appointed  by  Gov.  Joseph  K.  Toole,  of  Montana. 

C.  W.  Conger,  Dillon.  Donald  Fowler,  Lewiston. 

Nat.  McGiffin,  Great  Falls.  Andrew  Dunsire,  Kalispel. 

Z.  H.  Daniels,  Livingston.  Judson  A.  Ferguson,  Helena. 

Josehh   Sullivan,  Fort  Benton.  P.  B.  Gallagher,  Great  Falls. 

Daniel  G.  Brown,  Butte.  James  Moore,  Townsend. 

Appointed  by   Gov.  William    S.  Jennings,  of  Florida. 
Hon.    A.    H.   D'Alemberte,   Collector    of  Revenue,  Pensacola. 


l82 


APPENDIX. 


Appointed  by  Gov.  George  K.  Nash,  of  Ohio. 


Hon.  Chas,  Foster,  Fostoria. 
Hon.  A.  S.  Bushnell,  Springfield. 
Hon.  M.  E.  Ingalls,  Cincinnati. 
Col.  Myron  T.  Herrick,  Cleveland. 
Col.  W.  W.  Miller,  Erie  Co. 
Mr.  J.  S.  Stickey,  Van  Wert. 
Hon.  W.  D.  Guilbert,  Columbus. 
Hon.   S.  B.   Rankin,   South  Charles- 
ton. 

Appointed  by  Gov.  Benj.  B. 
George  Hall,  Ogdensburg. 
Frederick  P.  Hall,  Jamestown. 
C.  F.  Moulton,  Cuba. 
George  B.  Sloan,  Oswego. 
Lester  F.  Stearns,  Dunkirk. 
Martin   Heermance,    Poughkeepsie. 
Wm.  S.  Rann,  Buffalo. 
Grant  Sard,  Albany. 
Samuel  D.  Coykendal,  Kingston. 
Samuel  B.  Clark,  lOO  Broadway,  N. 

Y.  City. 
Gustav  H.  Schwab,  5  Broadway,  N. 

Y.  City. 
Pascal  P.  Pratt,  Buffalo. 
Adolph  J.  Rodenbeck,  Rochester. 
George     F.     Seward,     N.     Y.     City 

(Chamber  of  Commerce). 
Jotham  P.  Allds,  Norwich. 

Charlton  T.  Lewis, 

Appointed  by  Gov.  Robt.  M. 

N.  S.  Glison,  Member  Wisconsin 
State  Tax  Commission,  Madison. 

Nils  P.  Haugen,  Member  Wisconsin 
State  Tax  Commission,  Madison. 

George  Curtis,  Jr.,  Member  Wisco- 
sin  State  Tax  Commission,  Mad- 
ison. 

Hon.  W.  T.  Lewis,  Racine. 

A.  S.  Dudley, 


Hon.  Gilbert  H.  Stewart,  Columbus. 
Mr.  M.  E.  Thresher,  Dayton. 
Hon.  James  Rudolph  Garfield,  Cleve- 
land. 
Mr.  A.  F.  Bromhall,  Troy. 
Mr.  F.  C.  Howe,  Cleveland. 
Mr.  Robert  H.  Jeffrey,  Columbus. 
Mr.  Theodore  M.  Bates,  Cleveland. 
Mr.  Joseph  W.  Leman,  Cleveland. 

Odell,  Jr.,  of  New  York. 
Nevada  N.  Stranahan,  Fulton, 
flobert  H.  Whitten,  Albany. 
A.  M.  Hootman,  Tonawanda. 
W.  F.  Thummel,  New  York. 
Geo.  Stehler,  Rochester. 
Geo.  B.  Rounsevell,  Haskell  Flats. 
Lawson  Purdy,  New  York. 
Jacob  Spahn,  Rochester. 
Peter  Rapp,  Rochester. 
Frank  W.  Richardson,  Auburn. 
E.  Crosby  Kindelberger,  New  York. 
A.  B.  Potter,  Syracuse. 
Edwin  R.  A.  Seligman,  N.  Y.  City. 
L.  Carrol  Root,  N.  Y.  City. 
Mr.  Wyhe,  New  York. 
L.  P.  Herzberger,  Rochester. 
Martin  F.  Murphy,  Buffalo. 
Newell  Martin,  New  York  City. 
N.  Y.  City,  N.  Y. 

Lafollette,  of  Wisconsin. 

Thomas    H.    Brown,    Tax    Commis- 
sioner of  Milwaukee. 

Hon.  O.  H.  Ingram,  Eau  Claire. 

Hon.  A.  R.  Hall,  Knapp. ' 

Hon.  Jefferson  Rewey,  Rewey. 

Hon.  H.  O.  Fairchild,  Green  Bay. 

Chas.  AlHs,  head  of  Allis  Mfg.  Co., 
Milwaukee. 
Milwaukee. 


Appointed  by  Gov.  W.  J.  Sanford,  of  Alabama. 


Hon.  Harvey  E.  Jones,  Montgomery. 
Hon.  W.  J.  Wood,  Florence. 
Hon.  T.  L.  Sowell,  Montgomery. 
Hon.  W.  S.  White,  Sheffield. 
Hon.   John    Purifoy,    Montgomery. 
Hon.  D.  J.  Meador,  Myrtlewood. 


Judge  J.  E.  Horton,  Athens. 
Hon.  J.  B.  Butler,  Opelika. 
Hon.    Frank    P.    O'Brien,    Birming- 
ham. 
Judge  J.  E.  Camp,  Talladega. 
Chas.  B.  Teasby,  Montgomery. 


W.  J.  Wood,  Florence. 


APPENDIX. 


'83 


Appointed  by  Gov.  Joseph  D.   Savers,  of  Texas. 
Hon.  Dudley  G.  Wooten,  Dallas.  Hon.  D.  C.  Giddings,  Jr.,  Brenham. 


Hon.  O.  B.  Colquitt,  Terrell. 
Hon.  R.  E.  Prince,  Corsicana. 
Hon.  Cone  Johnson,  Tyler. 
Hon.  Jonathan  Lane,  La  Grange. 


L.  W.  Lloyd,  Esq.,  Marshall. 

Hon.  James.   H.   Dinsmore,    Sulphur 

Springs. 
•Hon.  W.  J.  Bailey,  Fort  Worth. 


Presley  K.  Ewing,  Esq.,  Houston. 
Appointed  by  Gov.  Richard  Yates,  of  Illinois. 


John  W.  Bunn,  Chicago. 

E.  G.  Keith,  Chicago. 

J.  V.  Farwell,  Chicago. 

T.  C.  MacMillan,  Chicago. 

Col.  E.  R.  Bliss,  Chicago. 

Allen  R.  Foote,  Editor  Public  Policy, 

Chicago. 
Adolph  F.  Gartz,  Chicago. 
Lyman  B.  Ray,  Morris. 
Hon.  Chas  H.  Deere,  Moline. 
Wm.  Cannon,  Danville. 
Chas.  W.  Tooke,  Champaign. 
C.  L.  V.  Mulkey,  Metropolis. 


Lewis  H.  Frazell,  Viemia. 
F.  M.  Youngblood,  Carbondale. 
C.  G.  Cloud,  McLeansbour. 
W.  K.  Murphy,  Pinckneyville. 
John  M.  Laudson,  Cairo. 
Judge  A.  G.  Olney,  Harrisburg. 
Frank  P.  Crandon,  Evanston. 
H.  H.  C  Miller,  Chicago. 
Will  H.  Lyford,  Chicago. 
Frederick  W.  Upham,  Chicago. 
Robert  Mather,  Chicago. 
Prof.   G.   Tooke,   University  of   Illi- 
nois. 


Appointed  by  Gov.  Benton  McMillan,  of  Tennessee. 
Hon.  E.  C.  Reeves,  Johnson  City.  Hon.  A.  B.  Woodard,  Fayetteville. 


Hon.   Joshua  •  Caldwell,   Knoxville. 
Hon.  John  W.  Faxon,  Chattanooga. 
Hon.  E.  Jarvis,  Sparta. 
Hon.  W.  L.  Givens,  Dayton. 


Hon.  W.  C.  Collier,  Nashville. 
Hon.  C.  R.  Berry,  Franklin. 
Hon.  E.  L.  Bullock,  Jackson. 
Hon.  H.  J.  Livingston,  Brownsville. 


Hon.  P.  P.  Van  Vleet,  Memphis. 
Appointed  by  Gov.  James  B.  Orman,  of  Colorado. 


Senator  H.  H.  Seldomridge,  Colo- 
rado Springs. 

Hon.  Wolfe  Londoner,  Denver. 

Senator  Jas.  W .  Bucklin,  Grand 
Junction. 

Hon.  Andrew  Park,  Pueblo. 

Senator  John  A.  Rush,  Denver, 


Hon.  George  B.  Weir,  Holyoke. 
Hon.  Peter  Gorman,  Denver. 
Senator  W.  A.  Hill,  Fort  Morgan. 
Prof.    Walter    H.    Nichols    (Present 

address    Columbia    University,    N. 

v.),  Boulder. 
Dr.  Charles  S.  Elder,  Denver. 


Appointed  by  Gov. 

Hon.  Clark  Howell,  Atlanta. 
Hon.  John  D.  Little,  Columbus. 
Hon.  A.  O.  Blalock,  Fayetteville. 
Hon.  R.  T.  Fouche,  Rome. 
Hon.  P.  W.  Meldrim,  Savannah. 
Hon.  W.  F.  Eve,  Augusta. 
Hon.  Ed.  L.  Wight,  Albany. 


Allen  D.  Candler,  of  Georgia. 

Hon.  Seaton  Grantland,  Griffin. 
Hon.  W.  B.  Burnett,  Athens. 
Hon.  J.  B.  Park,  Greensboro. 
Hon.  Roland  Ellis,  Macon. 
Hon.  W.  A.  Dodson,  Americus. 
Hon.  E.  H.  George,  Madison. 
Hon.  R.  A.  Freeman,  Newnan. 


i84  , APPENDIX. 

Appointed  by  Gov.  Chas.  H.  Dietrich,  of  Nebraska. 

Hon.  G.  M.  Lamberton,  Lincobi.  E.  A.  Cudahy,  Omaha. 

Hon.  John  C.  Wharton,  Omaha.  Wm.  A.  Paxton,  Omaha. 

Hon.  Fred  Hoye,  Omaha.  E.  M.  Pollard,  Nehawka. 

Herman  Kountze,  Omaha.  Victor  Rosewater,  Omaha. 

N.  W.  Wells,  Schuyler.  C.  H.  Gere,  Lincoln. 

Appointed  by  Gov.  Winfield  T.  Durban,  of  Indiana. 

T.  E.  Howard,  South  Bend.  W.  L.  Taylor,  Indianapolis. 

John  H.  Stotsenburg,  New  Albany.  Marion  Eaton,  Indianapolis. 

A.  G.  Compton,,  Richmond.  H.  B.  Brown,  Valparaiso. 

Strafford  Maxon,  Elkhart.  A.  H.  Koerner,  Jasper. 

W.  E.  Stone,  LaFayette.  J.  D.  Oliver,  South  Bend. 

Union  B.  Hunt,  Indianapolis.  John  C.  Wingate,  Wingate. 

Parks  M.  Martin,  Spencer.  Lewis  B.  Howland,  Indianapolis. 

Will  S.  Stewart,  Muncie.  Lewis  Legler,  Evansville. 

Eli  Marvin,  Frankfort.  M.  V.  Walch,  Ft.  Wayne. 

Geo.  Jamison,  LaFayette.  W.  P.  Rogers,  Bloomington. 

Appointed  by  Gov.  Leslie  M.  Shaw,  of  Iowa. 

Hon.  John  Herriott,  Des  Moines.  Wm.  W.  Baldwin,  Burlington. 

Hon.  John  Cownie,  Des  Moines.  Rufus  L.  Chase,  Des  Moines. 

Hon.  Washington  I.  Babb,  Mt.  Pleas-  Hon.  S.  T.  Meservey,  Ft.  Dodge. 

ant.  Hon.  Wm.  E.  Fuller,  West  Union. 

Wm.  W.  Witmer,  Des  Moines.  Hon.  James  B.  Harsh,  Creston. 

Appointed  by  Gov.  John  W.  Smith,  of  Maryland. 

H.  P.  Williams,  Baltimore.  Edw.  W.   Mealey,   Hagerstown. 

Alfred  F.  Niles,  Baltimore, 

Appointed  by  Gov.  Aaron  T.  Bliss,  of  Michigan. 
Edw.  J.  Wright,  Lansing. 

Appointed  by  Gov.  John  Hunn,  of  Delaware. 

Saml.  H.  Baynard,  Wilmington.  William  Lawton,  Wilmington. 

John  S.  Rossell,  Wilmington. 

Appointed  by  Gov.  Foster  M.  Voorhees,  of  New  Jersey. 
Henry  J.  West.  Major  Carl  Lenz. 

Thomas  B.  Usher.  Lewis   R.   Williams,  Trenton. 

Appointed  by  Gov.  W.  W.  Heard,  of  Louisiana. 
William  Wirt  Howe,  New  Orleans. 

Appointed  by  Associated  Board  of  Trade,  Boston. 
John    Mason    Little,    Boston,    Mass.  Max  West,  Washington,  D.  C. 

Victor  S.  Clark,  Washington,  D.  C. 


APPENDIX 


>85 


After  adjournment  of  Conference,  Chairman  Seligman  appointed  the  follow- 
ing Executive  Committee  : 


Edwin  R.  A.  Seligman  (Chairman  Colum- 
bia University),  New  York  City. 

John  A.  McCall  (President  New  York 
Life  Insurance  Co.),  New  York  City. 

Charles  S.  Fairchild  (President  New 
York  Security  and  Trust  Co.),  New 
York  City. 

Lawson  Purdy  (Secretary  New  York  Tax 
Reform  Association,  New  York  City. 

Charles  S.  Hamlin  (President  Massa- 
chusetts Anti-Double  Taxation  Lea- 
gue), Boston,  Mass. 

F.  W,  Taussig  (Harvard  University), 
Cambridge,  Mass. 

M.  E.  Ingalls  (President  the  Cleveland, 
Cincinnati,  Chicago  &  St.  Louis  Rail- 
road Co.),  Cincinnati,  Ohio. 


James  R.  Garfield  (Chairman  Ohio  Sen- 
ate Committee  on  Taxation),  Cleve- 
land, Ohio. 

Henry  C.  Adams,  Ann  Arbor,  Mich. 

Frederick  U.  Upham  (Board  of  Tax 
Review),  Chicago,  111. 

T.  E.  Howard,  South  Bend,  Ind. 

N.  P.  Gilson  (Chairman  Wisconsin  State 
Tax  Commission),  Madison,  Wis. 

Wiiliam  Wirt  Howe  (Former  President 
American  Bar  Association),  New  Or- 
leans, La. 

John  Francis  (Chairman  Kansas  Tax 
Commission),  Colony,  Kans. 

J.  W.  Bucklin  (Chairman  Colorado  Sen- 
ate Committee  on  Taxation),  Grand 
Junction,  Colo, 


Ex-Officio. 
Frederick  N.  Judson,  St.  Louis.  Mo.  Ralpn  M.  Easley,  Chicago,  111. 


INDEX. 

PAGE 

Adams,  Henry  C. — "The  Valuation  of  Franchises" 174 

Appendix   180 

Bates,  Theodore   M 27,  72 

Bemis,    E.    W , 133 

Bromhall,  A.  F 20,  74 

Bucklin,  James  W. — "The  Australasian  Tax  System  in  the  Antipodes  and 

in  Colorado  in,  128,  129 

Call  for  Conference i 

Chase,   Rufus  L 131 

Clark,   Samuel   B 137,  138 

Crandon,  F.  P 25 

Creasy,  William  T. — "A  Farmer's  View  of  the  Tax  System  of  Pennsyl- 
vania"       141 

Davies,  Julien  T. — "The  Remedy  by  Certiorari  in  the  State  of  New  York 

for  Illegal,  Erroneous  or  Unequal  Assessments" 157 

Diehl,  Mayor  Conrad 5 

Dudley.    A.    S 43,  45 

Fairchild,  Chas.  S. — "Taxation  of  Banks  and  Trust  Companies" 52 

Foote,  Allen  Ripley — "Taxation  of  Public  Service  Corporations" 55 

Fryer,  Greville  E. — "The  Excessive  Taxation  of  Insurance  Companies" 170 

Garfield,  James  Rudolph — "Listing  and  Valuation" 11,  16,  139 

Godard,  A.  A 132 

Grosser,   E 28 

Hall,  E.  C 30 

Heermance,  Martin  30 

Hines,  Walker  D. — "Railroads  and  Other  Public  Service  Corporations  in 

Their  Relation  to  Taxation" '97,  136 

Hoffman,  Frederick  L. — "The  Taxation  of  Life  Insurance  Interests" 146 

Howard,  Judge  T.  E. — "The  Indiana  General  Property  Tax  Law" 29,  43,  84 

Howe,  Frederic  C. — "Federal  Restraints  on  the  Taxation  of  Public  Service 

Corporations"    34 

Hubbard,  Wm.  P 96 

Judson,  Frederick  N. — "Taxation  of  Mortgages" 47,  63,  83 

Mather,  Robert   45,  100 

McMillan,  Thomas  C 130 

Niles,   Alfred   F 50,  167 

Purdy,    Lawson — "Local    Option" 26,  27,  123 

Resolutions,   Debate   on 140,  167 

Rodenbeck,  A.  J. — "The  Compilation  and  Classification  of  the  Tax  Laws 
of  the  Various  States  as  the  Necessary  Basis  for  a  Practical  Uni- 
form Tax  Law" 17,  155 

Rossell,   John    S 51,  75 

Rogers,  W.  P 75 


INDEX. 

PAGE 

Spahn,  Jacob  19 

Seligman,  Edwin  R.  A 6,  18,  78,  140,  168 

Seward,  George  F. — "Taxation  in  New  York" 116 

Sloan,  George  B 49 

Stotsenbiirg,  John  H 62 

Taylor,  W.  L 72,  12S.  134.  169 

Tooke,  Charles  W. — "The  'New  Revenue  Law'  of  Illinois" 89 

West,  Max — "The  Taxation  of  the  Farmer" 21,  71 

Westenhaver,  D.  C. — "The  Separation  of  State  and  Local  Revenues" loi 

Wright,  Edw,  J 135 

Whitten,   Robert   H. — "The  Inheritance  Tax'" 79 

Williams,  H.  P 19,  -j-] 

Williams,  L.  J 27,  28 

Wingate,  John  C 129 


A 


Hsi 


